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More Sellers, Investors Weigh SLB Deals

Sale-leaseback deals can deliver stellar assets at deep discounts to investors with cash, while giving sellers a much-needed liquidity boost.

By Erika Morphy | Updated on March 23, 2008

Sale leaseback transactions — a deal in which a company sells owner-occupied real estate and then leases the space from the buyer — are expected to grow in the coming months, albeit not at the pace some might be expecting given the storm clouds over the economy. Nonetheless, the case for these transactions to grow in the next year is straightforward, Richard Brown, co-head of the leasing practice at New York City-based law firm Herrick, Feinstein, tells GlobeSt.com

“All other things being equal, in tough or uncertain economic times, wewould expect to see an up-tick in sale-leaseback transactions,” he says. “It can be a logical, win-win deal between an investor, who wants to own properties and have monthly cash flow, and a corporation, which would prefer having cash on hand to owning real estate. That improves the company’s financial condition while, at the same time, allows them to concentrate on their core business and not worry about owning real estate, where they have no particular expertise.”

For instance, if Bear Stearns had had an inkling of its coming woes in January – or even if it had just decided that the market environment was becoming too inhospitable – it could have sold its marquee skyscraper headquarters, valued at $1.4 billion, to give itself a cash cushion. To be sure, this property is burdened with the equivalent of $570 million in debt, according to accounts, and ultimately it is unlikely such as sale would have stopped the run in confidence in the bank that happened in March. But with some cash on hand, it might have been able to gain some leverage in the negotiations, holding out for a better price than the $236 million acquisition price – or at least been able to later somewhat assuage the outrage of its employees and shareholders with the pre-emptive move.

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