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4C — April 29 - May 12, 2016 — Spring Preview — M id A tlantic
Real Estate Journal
S ale -L easeback
By Anthony Diaz, NAI Summit The sale-leaseback approach
S
o you need cash but sell- ing your business is not an option but the market
increases and most are triple- net-lease arrangements. For the seller it gives the busi- ness capital it might need. Also for their clients it is a seamless transaction with no impact on them. Another great advantage of the sale -lease back for the seller is structuring the lease accord- ing to their needs, however if it is short term this could sometimes be a deal breaker for the investor buying the property. Also the seller usually re- ceives more cash than tra- ditional refinancing. Why? Because when using a con- ventional bank, banks will
into consideration. Also the seller avoids costs associated with conventional financing such as points, appraisal, misc fees, etc. For the balance sheet the seller is taking a fixed as- set and turning it into a to a current asset. (cash) Thus this can help if you want to borrow short term loans from a bank. Also for larger companies, if their is a bond agreement or debt restriction agreement, rent sometimes is not considered ineptness. The sales-leaseback can also help with much needed cash during a corporate takeover. And sometimes the cash
could give the corporation a much better return on their capital compared to real es- tate appreciation. Another good thing about rent is that it typically is deductible for tax purposes. There are other advantages to the sale -lease back in regards to capital gains and losses under 1231 of the IRS code that should be consulted with a qualified accountant, especially for long term lease backs such as 30 years. As with anything in life nothing is perfect. There are disadvantages such as a loss of appreciation of the build- ing. Unless you have a crystal ball no one can predict what real estate will do. If there is a major appreciation, the company will of course miss out on the gains. Remember you are not the boss,so that addition you just thought of might not fly with the new owner. Also the seller is obligated to the lease. The possible change of ownership could have you dealing with a new owner who might not be as accommodating as the past. These are all things to consider. Ok so what is the win for the buyer? You typically have a fully leased building with a solid tenant. Also you can typically see how the tenant took care of the real estate. Obviously appreciation in the property value is a benefit as well. Increasing rent payments is typical over a long period of time. There are ways of doing advanced depreciation on the property instead of the tradi- tional term of yearly deprecia- tion. Also the interest on your mortgage payment can be deductible and perhaps claim some tax credits that owner- ship could be eligible for. And do not forget the up- keep of the property and property management. Also it is the duty of the buyer to make sure the tenant pays the taxes on time and make sure to review the insurance. Lastly rental payments are considered ordinary income and not sometimes as favor- able as capital gains. If you weigh the pros and cons, and be conscious of the idea, the sales-leaseback could be a solution clients are looking for. Anthony Diaz is assis- tant vice president at NAI Summit. n
not lend 100% of the value of the property. Typically they will only go 70-80% Loan to Value, meaning 70-80 per- cent of what the property is worth. When you sell a busi- ness you receive 100% of the value minus capital gains. Capital gains could be an is- sue if you sell the property at a large gain or at a huge loss. For example, if you bought the property at $100,000 and had the good fortune at selling it at $500,000. That is a gain of $400,000, times that by the capital gains rate as high as 20%. A large loss could work against you as well. So this must be taken
is at an all- t ime h i gh for real es- tate prices. A possible solution is a sale-lease- back . The owner sells the real es-
Anthony Diaz
tate that the company owns to an investor and then leases the space back on an agreed upon price and time period. The lease would be common to most leases. They can be fixed or have a gradual yearly
NAI SUMMIT 3435 WINCHESTER RD, SUITE 300 ALLENTOWN PA 18104 610.264.0200 NAISUMMIT.COM
2300 Hanover Avenue Allentown
2124 & 2118 Hanover Avenue Allentown
3850 Sierra Circle Center Valley
FOR SALE MULTIPLE BUILDINGS, VARIETY OF USES
FOR SALE INDUSTRIAL BUILDING ON 7.3 ACRES
FOR LEASE DEVELOPMENT OPPORTUNITY
Lehigh 94,026 SF $3,350,000
Lehigh 2.36 AC Call for details
Lehigh 15,357-33,517 SF $3,680,000
COUNTY BUILDING SF PRICE
COUNTY AVAILABLE SF RATE
COUNTY BUILDING SF PRICE
FEATURES Industrial building with additional 1.6 acre parking lot included, B3 zoning, 10 drive in doors and 8 dock doors, 18’-20’ ceiling height in warehouse, several interior drive-thru doors, administrative offices, kitchen and break room, interior coolers and onsite garage for truck repair, located directly off Hanover Avenue with easy access to Airport Rd, Routes 22 & 378, 3 miles from LV Int’l Airport
FEATURES 2.36 acre Office Pad site in Class ‘A’ Stabler Corporate Center, zoned Industrial/Commercial with neighboring office and medical buildings, adjacent to The Promenade Shops at Saucon Valley, close proximity to The Center Valley Club golf course and new 5-story hotel/ banquet facility currently under construction, located just off Routes 309 & I-78 providing easy access to PA Turnpike, NJ and NY
FEATURES 3 buildings on 8.85 acres, 33,517 SF one story office/showroom building, 15,357 SF one story showroom building, service building and ample parking, B3 Zoning allows for a variety of uses, multiple entry points, excellent visibility on busy road, over 43,700 vehicles per day, located directly off Hanover Avenue with easy access to Airport Road, Routes 22 and 378, 3 miles from LV Int’l Airport
FOR MORE INFORMATION ON THESE PROPERTIES, PLEASE CONTACT FRANK T. SMITH, CCIM, CPM, 610.871.1682
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