This article published on Friday, February 26th, 2010 is quite possibly one of the worst articles you will ever read discussing the merits of a sale/leaseback transaction. I feel sorry for the brokers quoted in the publication. It feels like the author chopped up their quotes and used them where she thought best rather than where relevant (60 Minutes tactics).
Joking aside, any article discussing sale/leasebacks, especially when touting benefits to the end buyer/investor is lacking without LOUDLY calling out the fact that sale/leasebacks are financing vehicles for the tenant. The tenant is using the money from the sale to fund some other portion of their business. In this day and age, it is a safe bet to assume that any tenant offering a sale/leaseback is doing so to generate cash to stay afloat. Why would you lend an operator money to say afloat at 7.50% – 8.50% (capitalization rate)? This type of loan request seems more like it should fit into the hard money category and carry much more onerous terms. To be fair, the article does mention a tenant’s possible uses for the funds generated through a sale/leaseback but stops far short of calling out that the process of structuring a sale/leaseback is nothing short of providing a corporate financing vehicle. This is why so many people who purchase sale/leaseback investments get smoked. I wrote an article about this several months ago which you can read here.
The above being said, not every sale/leaseback is a bad one. My company for instance is selling a property in Marina Del Rey, California under a sale/leaseback structure. The difference with our offering is the real estate is 2nd to none in terms or asset quality (regardless of the tenant), the tenant has been operating at the site for almost 20 years, the tenant has a proven history of massive sales figures and the rent offered under the sale/leaseback is infinitely replaceable. I’m not touting our opportunity as being without risk. I’m merely pointing out that not all sale/leaseback opportunities are created equal. If we agree to take on a sale/leaseback deal you can rest assured we believe it to be solid from both a real estate fundamental standpoint and an operational standpoint.
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