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An Overview of Sale-Leaseback Transactions

Many business owners reach a point where they need additional capital to fuel growth. Traditional means of doing this include raising equity or taking on more debt. One of the more under utilized options for businesses that own their own real estate however is the sale-leaseback.

By Jonathan Hipp | Updated on May 15, 2015

Many business owners reach a point where they need additional capital to fuel growth. Traditional means of doing this include raising equity or taking on more debt. One of the more under utilized options for businesses that own their own real estate however is the sale-leaseback.

A sale-leaseback involves a business selling its real estate to a third party and immediately leasing it back from the buyer. The proceeds of the sale can be utilized for expansion of the business by adding more locations or product lines amongst other things. Sale-leasebacks are similar to taking out a mortgage against the equity built into a property with the cap rate at sale being the interest rate. The cap rate will vary depending on the lessee’s credit, property location, and lease terms being offered. Better credit and longer lease terms equate to a lower cap rate and therefore lower cost of capital to the business owner.

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