What is a sale-leaseback?
A sale-leaseback (also sale-and-leaseback or SLB) is a transaction in which a business sells real estate it owns and occupies to an investor and simultaneously signs a long-term lease to stay in the property. The business converts illiquid real estate equity into cash while keeping full use of its facility.
How much cash can a sale-leaseback raise?
Proceeds are based on the property's full value as priced from the lease (rent divided by the cap rate), compared with roughly 60% to 80% of value from a conventional mortgage or cash-out refinance. Net proceeds are reduced by the payoff of any existing mortgage, closing costs and any tax on the gain.
How is the sale price determined?
Investors price a sale-leaseback by capitalizing the first-year rent at a cap rate. The cap rate reflects the tenant's credit, the length of the lease, rent coverage from the business's cash flow (EBITDAR to rent), annual rent increases and the quality and location of the real estate. A stronger tenant and a longer lease mean a lower cap rate and a higher price.
What does a typical lease look like?
Most sale-leasebacks use an absolute or triple-net (NNN) lease with an initial term of 10 to 25 years, multiple renewal options and fixed annual rent increases, commonly in the 1.5% to 3% range. The tenant usually pays taxes, insurance and maintenance, just as it did as an owner.
Who buys sale-leaseback properties?
Net-lease REITs, private net-lease funds, insurance companies, family offices, 1031 exchange buyers and private investors. The right buyer depends on the deal size, the tenant's credit and the property type.
Is a sale-leaseback better than a refinance?
It depends on your goals. A sale-leaseback typically raises more capital, removes mortgage debt and can improve balance-sheet ratios, but you give up future appreciation and pay rent. A refinance keeps ownership but raises less cash and adds debt. We model both side by side.
What property types work for a sale-leaseback?
Manufacturing plants, distribution and warehouse facilities, industrial outdoor storage and truck terminals, corporate headquarters, retail and restaurants, automotive dealerships, convenience stores and gas stations, car washes, medical offices and surgery centers, childcare and education facilities, churches and many other owner-occupied properties.
Can a sale-leaseback fund an acquisition?
Yes. In an OpCo/PropCo structure the buyer of a company sells the target's real estate to a net-lease investor at closing, which can fund a large share of the purchase price at a lower cost than cash-flow debt. See our leveraged buyout page.
Are there tax or accounting consequences?
Yes. A sale can trigger taxable gain (or allow a loss) and lease accounting rules (ASC 842 / IFRS 16) determine how the transaction is reported. Repurchase options in particular can affect sale treatment. Review the structure with your CPA and tax counsel before signing.
How long does a sale-leaseback take?
Commonly 45 to 90 days from letter of intent to closing, depending on third-party reports (appraisal, environmental, survey, title) and the buyer's diligence.
Win-Win Capital Funding, LLC arranges financing and introduces property owners to investors and lenders and may be compensated. Win-Win is not a licensed real estate broker, tax adviser or accountant; where a licensed real estate broker is required, transactions are completed with or through appropriately licensed parties. Examples are illustrations, not appraisals, quotes or past Win-Win transactions. Consult your tax and accounting advisers.
