Corporate-tenant lease-back properties

[Will Kenner]

In the commercial arena I've been seeing many listings for corporate-owed properties with lease-backs. I'm curious why a corporation would want to sell-off their property and loose control of both their rent and an appreciating asset on their books? As a buyer, it's tempting as you have a well established tenant with corporate backing, and a NNN lease. But something about it almost seems like a sucker's bet. If the property is so valuable, why wouldn't the corporation hold on to it? Granted as with any property purchase there are many variables to consider that would make a good deal vs. a bad deal (solvency of the corporation, strength of the lease, remaining term, renewal options, ease of re-purposing / placing new tenant, etc). However I'm curious to hear the 10,000 ft view on this asset class from fellow BPers.

[Cason Acor]

Sale leasebacks are extremely common in commercial real estate. As a broker, they’re my favorite deals to do. 

The reason a company would execute a sale leaseback is because it creates a cash-out event. A company could want that cash for any number of reasons. Get the mortgage off their books, pay down other debt, use the equity for business expansion, etc. It could also be because business is bad and they need the cash to stay afloat. As a buyer, figuring out why this company is wanting to execute a sale leaseback will be an important part of your due diligence. 

Remember, not every company wants to own real estate. And not every company operates like a real estate investor. If your core business has nothing to do with real estate, then your equity and cash is usually better spent on your core business activities. Why would I want $1 million in equity in a building I own when I can use that cash to increase my revenue? It’s all about cost benefit analysis.