In right now’s increased rate of interest prices, for the primary time in a few years, there’s a situation the place the financing various of sale-leaseback is superior to the borrowing choices that an organization might need, based on Alan Pontius at Marcus & Millichap.
The agency’s senior vp and nationwide director of commercial, and healthcare divisions, talking on an organization information video, mentioned the borrowing fee for the leaseback, or the cap fee, is many instances lower than the company borrowing fee, or the enterprise borrowing fee, for the enterprise.
In different phrases, if the borrowing fee is 10%, however the proprietor may promote the constructing and lease it again at 8%, that’s a 200-basis level unfold, and clearly a way more helpful financing mechanism for the enterprise than borrowing towards their stability sheet, based on Pontius.
Another, or not less than an alternate use for the fairness capital that’s tied up in a constructing, is for enterprise growth, he mentioned.
“Many instances, the chance for the enterprise is there to broaden location, and even make capital enhancements to the power they’re in,” Pontius mentioned. “And oftentimes, the answer to discovering the capital wanted is to promote the property, get the fairness that was tied up within the property, and redistribute that fairness into the enterprise choices for growth, or enterprise enchancment, or capital enhancements, which might be on the desk for that enterprise.”
This fashion, he mentioned, the corporate continues to regulate the asset, as a tenant, for so long as they need – whether or not it’s a 5-year time period, a 10-year time period, a 15-year time period, or no matter choices is likely to be constructed into that settlement.
“It’s a terrific method for an organization to faucet underutilized fairness and both pay down debt, use it as a debt various, or use it to finance capital enhancements designed for the enterprise,” Pontius mentioned.
Sale-leasebacks have been utilized by corporations, massive and small, for a lot of, a few years as a automobile to broaden enterprise, pay down debt, or take a look at alternate options that the fairness in a constructing can present.
The underside line right now, Pontius mentioned, is that rates of interest have risen considerably, and this has opened, considerably, the extent of conversations right now about it being a fantastic supply for various financing.
