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Sale-Leasebacks Are Having a Moment

07.28.2023

Sale leaseback transactions involve a company selling a property and then leasing it back from the buyer. The seller gets an infusion of cash and the buyer benefits from a (hopefully) stable stream of income on an appreciating asset.  

With interest rates continuing to increase and credit markets remaining tight, sale-leaseback transactions are emerging as attractive options for both investors seeking returns and companies in need of capital. Capitalization rates, the measure of returns in sale-leaseback deals and calculated as annual income divided by purchase price, are reflecting the changing market. Cap rates are on the rise, averaging between 6.5% and 8.25%. The task for investors is to select the "best deals" on a risk adjusted basis taking into account price, industry, credit rating, location, etc. This is often more art than science with investors taking a variety of approaches to selecting properties.

Just another reminder that in a changing market there are always opportunities if you know where to look.

The credit crunch is reversing years in which corporate sellers had the upper hand in sale leaseback negotiations, as a booming real-estate market enabled them to ask higher prices for their properties while abundant cheap debt gave them other financing alternatives