Unlock Value and Growth with Sale-leasebacks

Wednesday 21st June 2023

Unlock Value and Growth with Sale-leasebacks

Wednesday 21st June 2023
Written by Commercial Collective

Are you in need of increased cash flow and capital?

Sale-leasebacks could be the key to unlocking it. To tell you more, our latest guest post is from local commercial and industrial real estate specialists Commercial Collective

Unlock value and growth with sale-leasebacks – Commercial Collective

The cost of running a business is seemingly increasing in all areas.

These costs include everything from staff costs with increasing super and salaries to rising power bills and interest rates.

There's certainly no denying that we're operating in a market with considerably more challenges than we're used to simultaneously experiencing. 

To support these increased costs and ensure continued growth, many businesses are making decisions on the best way to unlock hidden value in their real estate assets and maximise their investments.

One solution that proves consistently viable is the sale-leaseback transaction. 

sale lease back, property, business, advice

What does a sale-leaseback involve?

A commercial real estate sale-leaseback involves an operating company selling its owned real estate to a third-party investor while simultaneously entering into a lease to retain possession of the property.

This sale-leaseback transaction allows you to unlock the latent value within your real estate assets, releasing capital to propel your businesses forward.

When coordinated professionally, a sale and leaseback strategy gives you control and flexibility while extracting maximum value from your new role as owner-tenant.

Benefits of a sale-leaseback

Some of the main benefits of sale-leaseback include:

  • Immediate access to capital
  • Improved cash flow
  • Burden of capital building costs is relieved
  • Potential tax benefits may be available under the right conditions
  • Provides your business more flexibility for growth and relocation in future

While sale-leasebacks offer numerous benefits, it's essential to consider potential downsides, such as lease obligations, missed appreciation opportunities, and tax implications.

Is it a good solution for your business?

When weighing up the pros and cons of sale-leaseback, here are some of the key things we recommend you consider:

  • You'll lose ownership rights and control over the asset and must work with the new landlord to maintain the property.
  • Leaseback arrangements typically involve a long-term lease commitment, ranging from several years to several decades. This can also help with location certainty if a future business sale is being considered.
  • There is a potential for increased costs compared to what you would pay for a traditional lease. Additionally, market rental rates may increase over time.
  • Market value fluctuations. This is two-fold in that the business won't realise the future real estate appreciation and you may end up leasing the property at a higher rate than its current market value. This leaves you in an unfavourable financial position if you intend to repurchase the property in the future.
  • A tax disadvantage may be incurred if you don't seek tax advice throughout the process.

Engaging trusted real estate consultants can help you navigate these intricacies and determine the most suitable option for your business.

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Leaseback to unlock future growth

Sale-leasebacks are a viable option for any business looking to access the latent capital within their real estate. 

When all factors are considered, and the transaction is made under the guidance of a commercial real estate professional in conjunction with a business advisor, you can put yourself in a win-win situation for future business growth.

Guest profile

Commercial Collective is the market leader in commercial and industrial real estate within the Newcastle and Greater Hunter region. Our unwavering commitment is to empower our clients by helping them unlock value in their lives and businesses through property. 

(02) 4077 5858| www.commercialcollective.com.au