The Art of a Sale Leaseback

May 11, 2016

Companies are constantly faced with the question, when is the right time to sell their office building. What many people don’t know is just as much of the value of a commercial property is in the value of the lease as it is actual bricks and mortar. What this means is selling a building with a 5 to 10 year lease term will garner a much higher value than selling a property vacant. We encourage many of our clients to consider the pros and cons of doing a sale leaseback to coincide with their long range planning instead of waiting until there is no longer a need for the property. Doing so will maximize value and eliminate time on market.

We have developed this list of pros and cons to reference when debating what is right for your organization:

 

Pros:

  • Maximizes value of the property and reduces long term risk

  • Provides personal cash infusion or business capital

  • Reduces exposure to capital expenses

  • Less daily management responsibilities

  • Opportunity for other investments (1031 Exchange)

  • Most equitable way to dissolve LLC prior to partners retiring

  • Control business exit strategy

  • Improve balance sheet by reducing/eliminating debt

  • Greater flexibility regarding occupancy

  • At the end of the term, Tenant can walk away with no obligation or debt from potentially obsolete or significantly devalued building or improvements

Cons:

  • Potential loss of control regarding property matters

  • Potentially higher lease rates

  • Real Estate Tax Exposure

  • Lease liability on practice balance sheet

  • Unknown renewal probability

  • Payment of Capital Gain Tax

  • Investor may require personal guaranty where members are joint and severally liable

     

     

     

     

     

     

     

     

     

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