Tapping the value of your real estate to enhance
competitiveness and maximize value.
Today we see two primary drivers
that are prompting business owners
to contemplate these strategies:
Global & Regional Economic Conditions are driving the need
for increased productivity to ensure that businesses remain
profitable and competitive, often translating into a
requirement for major capital investment in equipment and
systems. Commercial Property, as an asset class, is in high
demand from many types of investors, ranging from the larg-
est pension funds, Real Estate Investment Trusts to private
investors. Values are high and properly priced assets sell
quickly, making this an excellent window in which to execute
a sale. The slow growth and recessionary environment
around the globe has created a challenging environment for
companies across many sectors, particularly those engaged
in exports. However, these circumstances have produced an
ideal environment in which real estate thrives; assets are po-
sitioned as attractive investments reinforced by an ultra-low
interest rate environment. Companies that require capital may
determine that the equity tied up in a real estate asset could
produce a higher return if invested into the core business.
This is where a sale-leaseback can be an excellent approach.
Employing this strategy allows the organization to extract
capital from real estate, and re-deploy it where needed,
without disrupting day-to-day operations. Where the owner
wishes to dispose of the operating business and related
property, the timing is also right for maximizing value.
Current commercial property market conditions in Canada are
excellent and look to remain that way in the near term. Now
is a great time to evaluate the sale-leaseback option and be
poised to execute if the strategy fits, before commercial
property market conditions begin to shift. As the Global
economy recovers, a counter-intuitive pull-back in demand for
Canadian real estate may occur, as other investment options
could become more attractive and compete for capital.
Demographics indicate that many small to medium sized
organizations are owned by baby boomers. These
individuals are approaching retirement and will need to
grapple with succession planning, or examine the disposition
of their businesses. A sale-leaseback or complete disposition
strategy may work very well given today’s market conditions
and help the retiring owner maximize value of the real estate.
nto a requirement for major capital investment in equipment
and systems. Commercial Property, n
How to unlock the value in your real estate and
re-distribute it where you need it most.
>> Unlocked equity that can be used to reduce debt
>> Redeployed equity from real estate into a core
business, allowing for expansion or re-investment
>> Lease payments are deductible operating expenses
>> Operations that remain in place without disruption to
employees, suppliers or customers
>> A strengthened financial picture by moving a fixed
asset, that is likely carried below market, off the
balance sheet and replacing it with cash
>> Releasing capital for the business owner’s
The sale-leaseback occurs when ownership in the operating
business will not change; the original owner sells the
property and at the same time, signs a lease agreement with
the new property owner. The proceeds of the property sale
are then available for use in the core business. In the case
of a retiring, or soon-to-retire business owner; the property
sale proceeds form a component of the owner’s retirement
funds. In this approach, the owner monetizes the value of the
property for their personal use and maintains ownership of
the operating business.
Are conditions right?
Assessing the Sale-Leaseback Opportunity:
Before going too far down the road, it is important to perform
an assessment of the opportunity. Marketability of the real
estate, and the strength of the financial covenant the operating
business can provide on a lease, should both be considered.
1. The real estate should be well located for its purpose. It
should also be functional and well maintained by today’s
standards. In simple terms, it needs to be marketable in the
future to prospective tenants or purchasers as a part of the
acquirer’s investment strategy.
2. The lease covenant provided by a business is the next
major component. The financial strength and track record
of an operating business, without the real estate asset on
its balance sheet, will need to be healthy enough to provide
comfort to both the prospective purchaser and potentially,
the financial entity that underwrites the loan for acquisition.
FULL business DISPOSITION
In a complete sale of both the business and real estate, two
different strategies may be employed.
1) When the acquiring business is larger and financially
stronger than the original owner, it can be effective to sell
the business first and subsequently sell the real estate.
This adds value to the property due to the financial strength
of the new business which provides a stable tenancy and
secure cash flow, making the property more attractive to
2) Where the acquiring business is similar, or smaller in size
than the original owner, it is prudent to have the real estate
valued separately from the operating business to ensure
that the property sells at full market value to either the
acquiring business or to a third party. Often when the
property and operating business are bundled, it is difficult to
ascertain if full value has been realized for both assets.
A KNOWLEDGE LEADER PUBLICATION
Leases property back
from Purchaser, maintains
ownership of business.
Purchases Land & Buildings
This paper has touched on some of the drivers of
sale-leaseback and related transactions that are currently
creating interest for business owners. The ebb and flow of
both financial and real estate markets will dictate strategy
and timing, as well as warrant in-depth analysis for each
asset in the context of its market and timing of the
transaction. At present, the Canadian commercial property
market is very strong. Careful monitoring of market
dynamics will be important to optimize the results of any
Our hope is that this general overview will provide food for
thought. Like all major financial and legal transactions, these
strategies should be reviewed with tax and legal experts, as
well as real estate advisors to ensure a prudent and
strategically sound approach for your unique business and
For more market trends
and statistics, please visit:
HOW IT WORKS >
SPARK | SALE-LEASEBACK STRATEGY