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Sale and Leaseback
Sale and leaseback is a type of real estate transaction in which the current owner of existing assets and at the same time their user sells the property or its shares and at the same time signs a long-term lease agreement with the new buyer. Thus, the original owner, although he loses the title to the property, remains its actual user.
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Grzegorz Chmielak
Head of Capital Markets & Valuation
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Benefits for the seller in a leaseback transaction
The main benefits of conducting a sale and leaseback transaction for the real estate seller are:
Benefits for the buyer in a leaseback transaction
The main benefits for the buyer of a property in the leaseback option are:
Attractive lease back
Benefits for the seller:
The main benefit of conducting a sale and leaseback transaction is the ability to release funds and obtain capital that can be used, depending on the company’s current needs, to invest in business development or to repay current liabilities.
A leaseback agreement may be an element of an ongoing restructuring program aimed at improving or restoring liquidity.
A sale-leaseback transaction is an alternative to a bank loan, which may be more difficult to obtain in the current market situation. However, it should be remembered that the project is assessed by the investor in terms of the quality and risk of future lease, and thus also in terms of the financial condition and development prospects of the original owner of the property and the future tenant. However, investors’ criteria are often slightly less restrictive than those of banks.
In special situations, leaseback may be a form of tax optimization. It allows you to replace the low cost of building depreciation with a relatively higher cost resulting from rent.
Benefits for the buyer:
For the buyer, a sale-leaseback transaction is an opportunity for an investment that guarantees stable income in the long term from an entity with high creditworthiness. Due to this, it is a particularly attractive product for pension and insurance funds whose risk profile is low and for which stable, predictable income in the long term is important.
Moreover, the sale and leaseback transaction is characterized by a relatively low operational risk because it concerns already existing, working assets that are fully verifiable.
In periods when access to capital is difficult, the pool of interested investors also includes so-called opportunistic investors, who have a higher risk profile. They are therefore able to enter into cooperation with entities with a higher credit risk.
The lease period in the case of sale and leaseback transactions is usually longer than the market standard. It has been 10 years and more. As a rule, the longer the contract, the more attractive the terms the tenant can negotiate.