than just a pie-in-the-sky ideal for corporations today. A firm’s core
business must always be its primary concern for survival in today’s
often harsh economic environment. So, frequently, companies seek ways
in which to
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| Michael Naughton, executive vice president of New York, N.Y.-based U.S. Realty Advisors |
free up capital to pay down debt or expand, and methods to reallocate
capital to be able to concentrate on their primary business and be more
productive and efficient. By entering into a sale/ leaseback agreement
with a capital partner, a firm can maintain full operational control
of a property, while enjoying the benefits of an off-balance-sheet operating
lease.
Michael Naughton, executive vice president of New
York, N.Y.-based U.S. Realty Advisors, explains that sale/leaseback
transactions are really financial transactions completed for accounting
reasons or to raise cash.
“We often see a company owning an asset for a period
of time, but then they may need money to expand their operations, so
they come to us,” Naughton says. “We see sale/leaseback in many industries,
but particularly in businesses that have heavy inventory turnovers such
as the garment industry, food industry, and auto suppliers. These businesses
want to invest capital into their inventory to keep up their supplies,
and not invest in real estate.”
U.S. Realty Advisors offers long-term net leases
that unlock the value of real estate assets and free up capital for
unrestricted uses. Naughton says that U.S. Realty Advisors, whose current
portfolio is valued at more than US$2.5 billion, structures its leases
to accommodate its clients’
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| Ethan Nessen, principal of Boston-based CRIC Capital, LLC |
accounting structures.
“We are very flexible with our leases, and we give
our tenants a lot of latitude with subleasing if they find they no longer
need all the space they have leased. And, before a spade even goes in
the ground, we arrange construction and permanent financing, and roll
it all into one contract,” Naughton says.
Ethan Nessen, principal of Boston-based CRIC Capital, LLC,
says there are several reasons why a corporation would enter
into a sale/leaseback agreement, including:
- Large corporations can typically get
a greater return on equity and return on assets by investing
in their core business instead of in real estate. If structured
properly, the sale/leaseback can be an operating lease so
that the liability is found in the footnotes and not on
the balance sheet. - Mid-size companies often wish to monetize
assets to expand their business, and book the earnings from
the sale/leaseback sale to help their stock price. - Private equity firms often team with investors to roll up and
buy companies. The proceeds in these deals come from the assets
received from the sale/leaseback transaction. - Franchisees view sale/leasebacks as a reasonable way to expand
their operations, because they realize that the value in the franchise
lies in the operations and the cash flow the operations produce
as opposed to being found in the real estate. - Companies whose head counts fluctuate may need additional space,
but they do not know for how long. So they do not want to commit
to a long-term lease because, for example, in 10 years their employee
count could be dramatically different.
CRIC Capital, LLC combines the pioneering net leasing professionals
of Boston-based Corporate Realty Investment Company, LLC with Prudential
Real Estate Investors. CRIC Capital, as a principal investor, purchases
real estate from and leases it back to investment grade and select below-investment
grade companies through a variety of customized net leases.
“Our clients have been very satisfied with our
results and they continue to work with us year after year,” says Nessen.
“Because of our co-venture with Prudential, we have access to a lot
of capital, so we can close if necessary on an all-cash basis. We close
consistently within the timing and the pricing that we promise.”