A sale and leaseback is a transaction in which a company simultaneously sells its real estate capital and enters into a lease agreement on it. This relatively simple concept becomes a powerful financial tool. The conversion of an illiquid asset: real estate, into the most liquid asset: cash, immediately improves the company's balance sheet and arms the company with several low cost methods to fund growth. Whether your company wants to expand, acquire new assets, construct new facilities, or simply take advantage of investment opportunities, a sale and leaseback can you give you the ability to act with the speed and efficiency of modern business without resorting to traditional debt alternatives.


The conversion of real estate into cash can strengthen a company in many different areas. First and foremost is the balance sheet, where only the purchase price or depreciated value of real estate is listed. If your real estate has appreciated significantly, your net worth is being understated. Consider a property carried on the balance sheet for $2 million dollars that has a fair market value of $5 million. A sale and leaseback will provide $5 million of cash that instantly strengthens the balance sheet and is available for company use.

Compared to other methods of raising capital, a sale and leaseback is quick and cost efficient. Issuing stocks or bonds is a lengthy, expensive process. Traditional mortgage financing provides 60%-80% of your property's value; a sale and leaseback provides 100%. Most other financing alternatives have significant fees; a sale and leaseback has no fees. And, most importantly, these other forms of finance require repayment; there is no repayment involved with a sale and leaseback. Your sale and leaseback will be structured as an “operating lease” according to FASB guidelines. This means that cash received from the real estate sales will appear as an asset on your balance sheet while the lease obligation can be a footnote on your company's financial statement rather than a liability on the balance sheet. The full lease payment of an operating lease is deductible. With a mortgage on the same property, only the interest payment is deductible, and the mortgage itself would appear as a liability on the balance sheet. Thus the company's taxable income is lower and its ability to borrow is higher with a sale and leaseback.

A sale and leaseback makes cash available for a company's primary business while making the company less vulnerable to an outside takeover for the purpose of liquidating its real estate. On the other hand, a company which has acquired another company can use a sale and leaseback on the property of the company it acquired to reduce cash outlay or debt.

The numbers reflect the results, always;  Earnings increase dramatically after execution of a strategic sale and leaseback due to the simple fact that cash tied up in a company's real estate does not usually provide as large a return as it does in the company's core business. Converting assets from real estate to cash not only improves liquidity, it improves the company's current ratio and borrowing ability as well as its ability to pay down debt, expand operations, fund acquisitions and take advantage of special investment opportunities. Corporations can use the cash to buy back stock. And all of this expansion can be achieved without cumbersome financial agreements because the cash has been raised through a sale and leaseback. Companies that intend to buy land and build their own buildings should take special note: a sale and leaseback could finance the entire venture.
Contact Information
Brad Baskin
Associate Vice President
Coldwell Banker Commercial WESTMAC
1515 S. Sepulveda Blvd.
Los Angeles, CA 90025
T 310 966 4347 | F 310 479 7797
baskin@westmac.com
www.westmac.com
DRE # 01437571 (individual)
# 01096973 (company)

Timothy C. Macker, Jr.
Senior Vice President Coldwell Banker Commercial WESTMAC
1515 S. Sepulveda Blvd.
Los Angeles, CA 90025
T 310 966 4352 | F 310 388 1043
tcmacker@westmac.com
www.westmac.com
DRE # 01232033 (individual)
# 01096973 (company)
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