Many companies today are not in the business of owning real estate but need the utility of land and buildings to produce their products or services. A sale leaseback enables a company to reduce its investment in these non-core business assets (the land & building) and liberate the cash in exchange for executing a lease and paying rent. In a sense, a sale leaseback separates the “asset value” from the “asset’s utility value” in a company’s real estate investment.
A real estate sale leaseback is a transaction in which the owner-occupant sells the land and building used in its business operations to an investment firm or real estate trust and then simultaneously leases the property back from the investor on lease terms agreed to concurrent with the real estate sale transaction. Typically, this will be a long-term investment for the special purpose investor so the seller is able to negotiate directly with the investor a mutually agreeable and clear set of lease terms. The full value of the real estate is extracted and there is no operational disruption. The seller continues to conduct business in the facility as if they still owned it.