Sale and Leaseback: How does this work?
The Sale and Leaseback concept refers to a financial lease operation that benefits companies with real estate assets but requires financing to create liquidity.
Under this scheme, a company that owns the property sells it to a leasing company and then signs a lease. In this way, the owner of the asset immediately acquires financial liquidity.
The real estate lease process
Even though ownership of the property is transferred to the buyer (in this case, the leasing company), the seller holds its rights of use and continues using it under a long-term renting agreement (usually between 10 and 20 years1).
The real estate lease process has advantages for both parties. While the seller acquires financial liquidity and deploys a strategy to conserve business assets, the buyer acquires a low-risk asset that provides a safe return.
Why choose Leaseback?
This model has historically returned profits in times of financial instability. Many large and medium-sized Mexican companies using warehouses or industrial parks1 for their operations have chosen this mechanism to obtain immediate liquidity in recent years.
Today, the success observed in these operations is a sample of how businesses can overcome a financial crisis without losing their real estate assets.
This leasing model allows for stability in the following ways (and more):
- Offers flexibility in the agreement configuration. Since these agreements are legally adapted to the needs of the seller (lessee) and the buyer (lessor), so that the legal relationship is set based on covenants regarding risk distribution, consequences for rent non-payment, termination due to contract breach, and covenants regarding maintenance and conservation work program.
- Monthly payments are set according to market prices in the location of the property.
- By conducting the operation with a credited company, you can have the security of being with a lessor who will add best practices, services, and assistance during the lease term.
- A tax advantage is found in the fact that both monthly payments and maintenance expenses are tax-deductible.
- In the case of the lessee, their credit lines will remain available as debt, or leverage levels will not be affected.
At Advance Real Estate, we focus on the acquisition, operation, and lease of industrial projects. If you have Class A assets within our target markets, we can assess your property and consider a proposal under the Leaseback mode. Contact us to find a custom-made solution for you.
Information source:
- www.arrendamas.com/blog-credito-arrendamiento-arrendamas/qu%C3%A9-es-el-sale-and-lease-back
- cincodias.elpais.com/cincodias/…/1592238974_494400.html
