Structuring Real Estate Sale-Leasebacks: An Alternative to Mortgage Financing for Owner-Operators and Investors

Description

Sale-leaseback transactions provide seller/lessee access to capital tied up in real estate assets without the underwriting and legal constraints of mortgage financing. Leases can be structured with a longer term, fixed payments, and effectively higher leverage than conventional loans, and allow for potential tax benefits not available with mortgage loans.

For the investor/lessor, the sale-leaseback provides the opportunity to acquire commercial real estate that comes with a long-term, credit-worthy tenant under a triple net lease. The credit quality of the tenant and the condition of the property are primary concerns for the investor.

One disadvantage for the seller is the loss of flexibility it had as owner-occupant. Lease negotiations over potential limitations for the seller can be contentious. Some tenant-friendly lease provisions will need to be subordinated to a future mortgage or ground lease, making SNDA provisions critical to the negotiation. The seller/lessee must be mindful of the accounting treatment of the lease under new accounting standards that went into effect in 2018.

Listen as our authoritative panel of real estate practitioners discusses sale-leaseback market trends, advantages and pitfalls for sellers and investors, deal structures and terms, and best practices for the parties to protect their interests.