Hi guys: I'm not from the real estate space but I've been asked to do some work that involve sales leaseback of stores. I was wondering if you can point me to any materials that can give me a walk through of how it works (both financially and from a process perspective) please?
Thanks!
I'm in contract for a sale-leaseback now.
You are hopefully looking to get rid of some liabilites on your balance sheet by selling and repaying some debt on the property and paying rent for a long term lease.
i'll get back t this. Last thing right now is use my free time today to talk about work. DM me if ou are interested.
The biggest focus in my experience has been credit analysis of the tenant. How likely are they to survive their entire lease? And how screwed are you if they do default on their lease?
What all are you trying to figure out? These free-standing retail stores that your company owns? I'll try to give a primer...
When you structure a Sale-Leaseback, the Seller (i.e. your company) will typically hire a brokerage firm to go out and market the property for sale. You'll set the terms that you're more or less willing to accept (i.e. rent, term, who's responsible for capex costs, etc...) and then your broker will market it to a pool of investors based on your desired rental rate and the current market conditions.
The Buyer will typically want 15+ years of term on the lease, and depending on your market, creditworthiness, value of the asset 'dark', they'll want rental rates that will yield them a 4%-8% IRR (eg ground lease for companies like Walgreens typically trade at a sub 5.0% cap rate on a 20 year ground lease), with rent bumping every 5 years at a minimum.
So say you're selling a 20,000 sf store, and you're willing to pay $25/sf/year in rent. Since operating costs are your liability under the Sale-Leaseback, then the Seller can expect NOI in Year 1 of $500,000, divided by a 5% cap rate yield gross distribution proceeds to your company of $10,000,000.
Most often, Sale-Leasebacks are structured as absolute net deals, meaning that your company is liable for 100% of the operational costs associated with the property (CAM, taxes, insurance), and in some instances, you may be responsible for certain capital expenditure-related costs.
Hope this helps.
Right in the money. Great response!
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