Most corporations of any size and scale have large investments in
land and facilities necessary for successful operation of their business. While making corporate investments into real estate assets may seem to be a reasonable strategy at first glance, they are rarely investment or capital driven decisions, but rather operating decisions that in retrospect usually fail to maximize leverage and value of their land and facilities beyond what is typically provided for within traditional ownership and financing structures. When an operating business finds itself in need of low cost capital their corporate real estate assets should be evaluated as a source of readily accessible quality capital. While a number of financially engineered solutions are available to maximize corporate real estate assets most commonly used structures center around Sale Leaseback transactions. Sale Leaseback transactions are popular solutions for following reasons:
Improved Financial Statements: By moving corporate real estate assets “Off-Balance Sheet” financing solutions are engineered that create no mortgage or other indebtedness to be carried as debt on your company's balance sheet. The immediate boost in cash without offsetting debt can improve overall financial health of a business. Book income typically increases in transaction's early years, with rent payments less than interest and depreciation under conventional financing. With our solutions, book value of company assets is effectively understated — enhancing your company's Return on Assets (ROA).
Financial Flexibility: Corporate real estate transactions are not bound by formalized loan industry or REIT requirements, giving lenders flexibility to meet operating needs of your business. Rents can be fixed for full lease term without inflation adjustments or any percentage rent. Rents can also be stepped to be lower in early years or reset periodically to take advantage of improved credit, interest rates and other conditions. We can also address unexpected financial and business contingencies.
Operational Control: Most lenders offer programs that will allow you to retain complete operational control of property for as long as it is required in your business.
Low After-Tax Cost: The lease payment under a sale leaseback structure is fully deductible over lease term, making after-tax cost to your company less than with alternative forms of asset-based financing and less than market rent you would typically pay. For federal income tax purposes, a company can only depreciate buildings and other physical improvements, but not land. Most sale leaseback solutions factor value of land into rent. The rent is fully deductible, effectively enabling you to depreciate cost of land.
