Sale-leaseback As A Successful Net Lease Strategy

Oct 18, 2016

Sale-leasebacks companies’ favorite method for infusing cash into the company.  That cash can be used to fund improvements, pay down debt, or it can be used as leverage to expand the business. It may also be used to buy out a partner, repurchase stocks, or fund the retirement of a senior stakeholder and subsequent transition of the new owners.

Sale-leasebacks occur when a company owns the property on which their business is located. They can decide to sell the property together with the land, to an investor under one condition: to be able to net lease back the property at market rates. The company is able to monetize 100% of the value of the property and continues to retain control of the property.

What Types Of Leases Are Used?

Most companies use net leases. Net leases offer several advantages to the company:

  • The security of a long lease, sometimes as long as 25 years, with an option to renew at the end of the lease. It offers both favorable terms and long-term security.
  • Since this is an operating lease and not a capital lease, lease payments are deductible. The subsequent reduction in expenses means the company will be able to achieve a lower debt to equity rate.
  • Research shows that companies who use leaseback strategies reduce debt and create equity, which in turn provides greater returns for stockholders.
  • Companies generally earn higher returns by investing the proceeds in their business, rather than real estate.
  • Cash on the balance sheet replaces capital assets.
  • A non-liquid asset becomes liquid cash that can be used for numerous purposes.
  • The company receives 100% of the value of the property instead of the 65% LTV that a typical mortgage would give.

Advantages For Investors

advantages of buying properties with net lease tenants

As an investor, there are numerous advantages in buying a property with a ready-made net lease tenant in place.

  • Net lease tenants offer a steady profit with secure tenants.
  • There are no vacancies with its attendant hassles and costs.
  • Management responsibilities are minimal or non-existent, depending on the type of net lease.
  • Although the tenant has sold the property, they are still committed to the location. Now, they have additional funds available to ensure the stability of the company or to increase profits.
  • Appreciation can be captured when accrued, especially if you renew the lease.
  • The lack of periodic vacancy justifies the premium pricing.
  • Acquiring this property is easier than other types of properties, since there is a proven income stream, making the investment attractive to lenders.

At Westwood Net Lease Advisors, we can help you find an attractive net lease property. With our help, you can achieve steady returns which are higher than those offered by bonds. There are no management responsibilities, which makes them ideal for baby boomers or retirees who would like to diversify their portfolios with a safe, secure investment.


Looking To Buy Commercial Property?

Find out why triple-net lease real estate investments should be part of your investment portfolio.