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About Sale-Leasebacks & Synthetic Leases
What is a Sale-Leaseback Transaction? (Motley Fool, Nov. 17, 2023)
“A sale-and-leaseback, also known as a sale-leaseback or simply a leaseback, is a financial transaction where an owner of an asset sells it and then leases it back from the new owner. In real estate, a leaseback allows the owner-occupant of a property to sell it to an investor-landlord while continuing to occupy the property. The seller then becomes a lessee of the property while the purchaser becomes the lessor.”
What if Your Sellers Have Nowhere to Go? (REALTOR® Magazine, Aug. 9, 2021)
“For sellers, it’s more difficult than ever to get the timing right between the sale of their current home and the purchase of their next property. Low inventory, high prices, and quick transactions work against them as buyers, so many sellers may need extra time to figure out their next move. One solution is to ask for a leaseback agreement, which allows the seller to stay put and rent the property from the buyer after the sale. Such an agreement is typically meant for a short period of time—a matter of days or a week. But in this feverish market, some agreements are stretching to a few weeks or even months, which can pose problems if they’re not structured to account for various risks, says Deanne Rymarowicz, associate counsel at the National Association of REALTORS®.”
An Analysis of the New Sale and Leaseback Guidance (CPA Journal, Sep. 2018) E
“The article discusses the launch of Accounting Standards Update (ASU) 2016-02, Leases (Topic 842) by Financial Accounting Standards Board (FASB) in February 2016. Topics include brief overview of lessor and lessee accounting, analysis of the sale and leaseback provisions in ASC Topic 842, and adoption of a dual model of lessee accounting that permits lessees to classify leases either as operating or finance leases.”
Advantages of Sale-Leasebacks
Finding Flexibility for the Boxed-In Homeowner: How the Residential Sale-Leaseback with Option to Buy Back Addresses a Growing Portion of American Homeowners (Duke University, Dec. 2023)
“A growing number of homeowners now fit the description of “Boxed-In Homeowners.” Unable to make use of their largest asset - home equity - in a time when cash flow and liquidity is crucial for surviving a financial-related life event. Boxed-in homeowners need access to more flexible tools and products that address flexibility and liquidity. The residential sale-leaseback with the option to buy back meets the Boxed-In Homeowner at the point of need. The sale unlocks substantial equity that can address financial issues such as mounting debt. The lease ensures the homeowner, now lessee, maintains housing stability and consistency without any physical notice of the sale. The option agreement allows the lessee the ability to mortgage the home owning it once again.”
Sale-Leaseback is Quickest Path to Debt Restructuing, Panel Says (Globe St., Apr. 5, 2023)
“For companies that still want to do deals but find the current cost of debt prohibitive, sale-leasebacks offer a less expensive, alternative form of borrowing that can close faster, the experts said. Sale-leasebacks deals also don’t require back-end balloon payments that often come with traditional financing. Ross Prindle, global head of Kroll’s Real Estate Advisory Group, said buyers are using their resources, including financing and cash deals, to make sale-leaseback transactions more attractive to sellers by making it less expensive to execute the deals.”
Who Should Consider a Sale-Leaseback in this Tight Industrial Market (Smart Business, Sep. 2022) E
“A sale-leaseback is great for someone with a strong business looking to get cash out of their building while keeping their business running. It’s often a strategy for those who are nearing or contemplating a near-term retirement, especially someone who doesn’t expect to leave the real estate to family operating the business.”
The Sale-Leaseback Liquidity Solution: Weighing the Pros and Cons (Nashville Business Journal, Mar. 11, 2022)
“For companies interested in raising liquidity and that own real estate holdings, one of the more interesting levers to potentially toggle is the sale-leaseback transaction. Especially now, as cap rates remain low despite a slight rise in underlying interest rates. The typical sale-leaseback transaction can be very straightforward to structure and execute, but it does come with advantages, disadvantages, and risks worthy of consideration.”
Why Partial Sale-Leasebacks are the All-Season Solution (Commercial Property Executive, Feb. 17, 2021)
“A sale-leaseback, in its most simplistic form, describes a transaction where the owner-occupant of a property sells the building to a real estate investor and executes a long-term lease at the time of closing, thereby becoming a rent-paying tenant without the hassle of having to physically relocate. A partial sale-leaseback describes the same transaction but instead of the owner-occupant continuing to occupy the entire building, they execute a long-term lease for only a portion of the space. This allows the company to right-size their operations, while allowing the new owner to collect rent on day one and lease the remaining space to additional tenants. The company avoids significant business disruption that would be caused by relocation or by becoming a landlord themselves while maximizing profits from the sale of their building.”
Hospitality, Government, and Healthcare Property Leasebacks
How Sale-Leasebacks Help PE Raise Capital in a Tight Market (Globe St., Mar. 27, 2024)
“It’s quite inefficient for private equity firms to have capital tied up in real estate assets that aren’t earning for them,” says Tyler Swann, managing director, investments at W. P. Carey. “An alternative is doing a sale-leaseback, which provides a much lower cost of accessing capital than traditional financing methods.” Understanding sale-leasebacks and their advantages can help private equity firms strategically manage growth funding, debt maturities and other capital needs.”
Why Now is the Time for Doctors to Cash Out of Their Buildings (CCIM Institute, Apr. 4, 2023)
“While your client’s decision to sell their practice may be up for debate, their building lease should not be. It stands to reason that the value of most practice sales eclipses the value of the physician’s building. That said, real property still carries millions of dollars in value, which can be jeopardized if a practice (the tenant or occupier) is sold without a new lease being structured to secure the real estate. A practice sale transforms a physician owner-occupier into a physician landlord. As real estate professionals, we all know that a good lease can make or break the value of a building. Navigating a lease negotiation during a practice sale can be tricky, but as a fiduciary to our clients, it is important that we help them structure a lease that preserves the value and salability of their building.”
What’s Behind Food Production’s Interest in Sale-Leasebacks (Globe St., Apr. 20, 2021)
“As food production companies continue to recognize post-pandemic opportunities for growth and enhanced profitability, demand for attractively priced sale-leaseback capital as a long-term source of funding will increase. The liquidity provided by a sale-leaseback can support a range of corporate initiatives, including balance sheet recapitalization, paying down debt and shoring up working capital for future growth.”
How Sale-Leasebacks Can Help Hotels in Need of Liquid Capital (Hotel Management, Nov. 18, 2020)
“Hotel sale-leasebacks may provide the ideal alternative to traditional financing methods—particularly in today’s landscape. Popular in the hospitality industries of Europe and Australia for more than 100 years, hotel sale-leasebacks are gradually gaining attention in the U.S. This arrangement allows the seller of a hotel to become a lessee to the new owner. After title is transferred, the parties sign a lease—typically for 20 to 40 years—in which the seller agrees to make monthly payments to the owner while maintaining a brand flag and management rights. The lease often contains options for renewal or repurchase and can be expanded and extended as needed.”
Sale-Leaseback Deals Continue to be Popular with Retailers (Commerical Property Executive, Jan. 8, 2020)
“Michael Lagazo, an independent retail real estate advisor based in San Diego, Calif., cited other reasons why sale-leaseback transactions continue to be popular with retail companies, including providing the seller with additional tax deductions without taking on debt. Lagazo also noted that big box chains “with high-cost fixed assets and/or substantial real estate holdings typically use sale leasebacks in order to access capital to reinvest into the business while maintaining assets required to operate without worrying about depreciation.””
Articles, Surveys & More From NAR
Find all of NAR's Commercial Real Estate Research here
Find an index to all NAR Research here
Commercial Real Estate Market Insights (National Association of REALTORS®)
Commercial Real Estate Market Trends and Outlook (National Association of REALTORS®)
The Commercial Real Estate Outlook is NAR's flagship commercial research publication. It is produced quarterly and includes the latest market information on five major commercial real estate sectors — industrial, office, multi-family, retail and hospitality real estate.
eBooks & Other Resources
eBooks.realtor.org
The following eBooks and digital audiobooks are available to NAR members:
The Art of Commercial Real Estate Leasing (Audiobook, eBook)
Complete Book of Real Estate Leases (eBook)
Investing in Real Estate with Lease Options and "Subject-to" Deals (eBook)
The Leasing Process: Landlord and Tenant Perspectives (eBook)
Leasing Administration Simplified (eBook)
Negotiate the Best Lease for Your Business (eBook)
Books, Videos, Research Reports & More
As a member benefit, the following resources and more are available for loan through the NAR Library. Items will be mailed directly to you or made available for pickup at the REALTOR® Building in Chicago.
Real Estate Investors Deskbook (Boston, MA: West Group, 2011) HG 4521 Ar6Re
Commercial Lease Law Answer Book (New York, NY: Vendome Group, 2008) KF 593 C6
Managing and Leasing Commercial Properties (New York, NY: Wiley, 2007) HD 1394 AL2ma
Real Estate Sale/Leaseback: A Review of the Advantages and Disadvantages (Washington, D.C.: Society of Office and Industrial REALTORS®, 1993) HD 1384 So1
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