Owning real estate assets or a team for business operations guarantees safe liquidity to cover fixed expenses and commitments, but it can be a challenging process initially. In this type of situation, a sale and leaseback financing is a viable alternative to explore.
What is sale and leaseback financing?
Companies can sell their real estate assets to a financial institution or a leasing society by employing this instrument.
Then, a leasing contract is signed where the company stipulates that after selling their property, they agreed to pay a symbolic lease to the buyer to continue using the assets after selling them.
This transaction includes two contracts: one for sale and the other for lease, with the latter having an estimated period of validity of 10 to 15 years.
When the contract is about to expire, the seller can choose to acquire the immovable assets at a minimum cost (equal to 1% of the value invoiced at the bank1), renew the contract, or vacate the space to invest in another that better meets the company’s needs.
It is important to note that as a tenant, the property seller should cover all the expenses2 derived from using the space. However, they will decide when to manage the maintenance and renovations of the property.
How is this solution valuable for industrial development?
If applied to industrial space leasing3, this financing model can be advantageous for the development of many sectors, providing a solution for companies that want to enjoy liquidity and solvency while maintaining control over the property.
The sale and leaseback strategy grants other benefits, such as:
- The possibility to keep assets even after its ownership has been sold.
- Immediate availability once the contract is signed.
- Financing of up to 100% of the assets.
- The best interest rates according to the value and period agreed.
- Obsolescence and residual risk transfer from holding the asset to the buyer.
- The tenant’s cash and credit lines are maintained.
This operation means safe and low-risk profitability for financial institutions that acquire assets. In this scenario, the inflow of resources can translate as an incentive for the growth of the industrial real estate sector.
When is the time to pick this business financing alternative?
Following the 2020 health crisis, several companies noticed repercussions in their cash flow. This popularized the sale and leaseback as a safety measure to obtain liquidity and solvency in times of hardship.
It created a circumstance where industrial development was encouraged by companies and financial institutions using this financing model.
Another situation where this option is worth considering is when business opportunities exceed a company’s investment capacity.
It is also a fitting solution when production activity is run in a place that, due to the nature of the operation, will need renovations in the oncoming years or will end in the company moving to a better-equipped location.
At Advance Real Estate, we provide industrial spaces to companies from different sectors to help them carry out their operational tasks and invest in their expansion. Contact us and enjoy a stable environment to keep growing.
INFORMATION SOURSES
- www.bbva.mx/empresas/…/sale-and-lease-back.html
- www.leialta.com/blog/sale-and-lease-back-inmobiliario-que-es-y-para-que-lo-puedes-utilizar-en-tu-empresa
- advance-realestate.com/adblog/cinco-beneficios-de-rentar-espacios-industriales
- www.bbva.es/finanzas-vistazo/…/lease-back.html
- credijusto.com/blog/que-es-el-sale-and-lease-back
- www.larepublica.co/empresas/sale-lease-back-alternativa-de-financiamiento-que-ofrece-liquidez-inmediata-y-flujo-de-caja-3100762
