LoginSignup
Sand River
  • REAL ESTATE FINANCE

OPTIMIZE CAPITAL STRUCTURE BY FINANCING REAL ESTATE OFF BALANCE SHEET

  A financial transaction where one sells an asset and leases it back for the long-term. 

  The purpose of the transaction is to free up the original owner’s capital while allowing the owner to retain possession and use of the property. 

  As a corporate treasury tool, a sale-leaseback takes the place of the debt and equity capital that a company would otherwise require to finance its real estate.

BENEFITS

  Can can maximize your return on equity

  Up to 100% financing / higher advance rates than than conventional debt

  Typically longer duration, reducing the time and expense of refinancing debt

  Often structured with extension options

  Limited or no restrictive covenants

  Longer duration locks in interest rate

  Operational and financial flexibility

MOTIVATIONS FOR FINANCING REAL ESTATE OFF BALANCE SHEET
  Free trapped equity: increased equity in the form of amortizing real estate mortgages can effectively be trapped equity.  
  Long-term real estate debt also may have restrictions on loan assumptions by successor owners, whereas leased real estate allows  for efficient M&A activity
  Real  estate leases, on the other hand, make it easier to maintain a stable, reliable capital structure and that can free up cash and produce higher returns lead to higher shareholder value