Is it time to sell and cash-out to invest in higher-yielding asset classes? Some investors seem to think so.
Many property types have taken a hit over the last few months in pricing and transaction volume.
While transaction volume has certainly been impacted, medical office building (MOB) pricing continues to hold steady while the price per square foot for the asset class has actually trended upward. As investors look for safer havens, some investors are moving into the MOB sector seeking greater stability and fewer economic and cyclical interruptions.
At the same time, some owners and investors see this as the perfect opportunity to sell and move to higher-yielding properties and/or prime real estate sites that are basically on sale at the moment. The retail sector has seen a year-over-year decline of approximately 5.2% from December of last year, while the hotel sector by about 2.7% according to Real Capital Analytics.
Check out the trends and price per square foot year-over-year increase for MOBs which have been on the rise since Q3 2019. The question is how long will this run-up in price last?
An option for owner/users who want to take advantage of the current opportunities being created by the market are sale-leasebacks. With a sale-leaseback, owner/users sell the property they are currently occupying and lease it back from the new owner.
The transaction allows you, the seller, to increase your liquidity while reducing your debt. In addition, immediate access to capital allows you to:
- Pay employees
- Stay afloat
- Be ready when normal operations resume
- Have additional emergency funds
- Acquire new equipment
- Expand your virtual operations
- Upgrade or invest in new equipment and/or technology
- Invest in marketing, new practice members, etc.
- Pay off business debt
Plus, you can:
- Write off the entire lease payment instead of just the interest on the mortgage loan
- Remain in the same location without incurring moving costs and disturbing your practice operations and patients
- Improve your debt-to-income ratio, balance sheet, and income statement
- At the time of the sale, the existing mortgage loan will be removed from the balance sheet
- Interest and depreciation are also removed from the property owner’s financials
- Benefit from a lower cost of funds than debt financing through off-balance-sheet financing
- Since sale-leaseback investors get the tax benefits of owning and depreciating the property, the seller can often be successful in obtaining a lower cost of capital than the cost for debt.
If you’re in the Tampa area and are considering selling your property, contact me for a consultation or a custom market and property valuation report.