The current commercial real estate climate offers an excellent opportunity to capitalize on the real estate that your company owns and operates out of. There are investors across the country looking to park their capital in stabilized assets, especially net leased assets at a yield that is satisfactory to their goals and strategy. This article will summarize the sale leaseback and how it could make sense for your business in this seller’s market.
What Is A Sale Leaseback?
At its simplest form, a sale leaseback occurs when a building owner/user sells his building to an investor and leases back his space at an agreed-upon rent and term. The buyer becomes the Landlord and the Seller becomes the tenant.
An Example Of A Sale Leaseback
For example, industrial user Enrico owns a 20,000 square foot (“SF”) warehouse building in Oxford, where he operates his last mile delivery service. He bought the building for $40/SF ($800,000) in 2004 and has no debt on the building currently. Enrico’s business has grown and is the preferred vendor in North Mississippi for his specific service. Enrico has observed others investing their money in net leased industrial assets and elects to market his property as a net leased, industrial asset. Enrico agrees to sign a five (5) year lease at $5.50/SF NNN, which is market for similar buildings in the Oxford area. Applying an 8.00% Capitalization rate to the Net Operating Income (NOI) ($110,000), Enrico derives a valuation of $1,375,000. Enrico lists the property at an 8% “Cap Rate” and sells the building at full list price. Enrico has successfully made a profit of $575,000.00 and can still operate out of his building. This is a simple example of how a sale leaseback could be effective for you.
Please contact Pinpoint Commercial Real Estate at 601.586.3220 to learn how our commercial real estate Mississippi office can help you maximize value!