Sale-Leaseback

A sale/leaseback transaction, in its simplest form, is a method for a business to raise immediate cash. When a business owns its real estate (and generally has substantial equity in the real estate) it can gain a new source of cash which it can then invest back into the business, payoff partners, etc. It generally has positive effects on the balance sheet and by leasing the property for a substantial period of time; the business retains control of the property.

During this credit crunch, more and more companies are using a sale/leaseback transaction as the preferred method of obtaining additional cash for operating expenses.

Generally, a buyer looks at three main items in considering the transaction:

1. The market value of the property being sold, including consideration of the condition of the property.
2. The fair market rent the property may yield -- the rental income stream is used to calculate the potential value of the property being sold.
3. The credit worthiness of the seller.

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