How professional office owner/occupiers can gain access to cash, alleviate debt, and remain in their current office space.
Business owners and professionals are experiencing one of the biggest challenges they have faced in their lifetime. Some industries have been hit harder than others like hotels and restaurants, while some, like grocery and delivery, are flourishing.
While we know this will pass, how can we navigate the waters and stay afloat?
If you own and occupy your professional office, a sale-leaseback may be just what the doctor ordered.
A sale-leaseback is when a property owner, who is also an operator, such as a lawyer or other small business sells their property but continues to operate their business in the building by leasing back the property from the new owner.
The arrangement is useful when a property owner needs or wants to gain access to cash, or wants to divest from a property but maintain the business operational on the existing site.
Upon the sale, the former property owner becomes the lessee.
The sale of the property gives him/her access to the equity in their property, allowing them to reinvest the funds in the business or as needed. The lease agreement is executed at the same time as the sale and the seller becomes the tenant while the buyer becomes the landlord.
The transaction allows the seller to increase liquidity while reducing debt. In addition, the immediate access to capital allows them to:
- Pay employees
- Stay afloat
- Be ready when normal operations resume
- Have additional emergency funds
- Expand operations
- Upgrade or invest in new equipment and/or technology
- Invest in marketing, new practice members, etc.
- Pay off business debt
Plus, sellers 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 practice or business operations
- 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.
The new buyer benefits by:
- Acquiring a leased property that has a committed tenant/tenants
- Being able to ask the tenant to view their financials
- Acquiring an improved property that meets the specific needs of their tenants
For more information on how you can leverage and benefit from a sale-leaseback, contact me.