Everything you ever wanted to know about conducting a sale-and-leaseback

Our Commercial Real Estate team has managed many successful sale-and-leaseback transactions and we’re often asked what the process entails. Here we answer some frequently asked questions.

What is a sale-and-leaseback?

A sale-and-leaseback is a commercial real estate transaction in which an owner of a commercial property sells it (usually to an institutional investor or commercial real estate investment trust), then leases it back on competitive terms.

Why do a sale-and-leaseback?

The main reason to enter into a sale-and-leaseback arrangement is to free up cash for business expansion, debt reduction and investment. In most cases, businesses receive favourable leasing terms, which provides a further competitive advantage.

What is the process for running a successful sale-and-leaseback project?

Every engagement is different, but we usually follow the same framework…

Phase 1: Clarify client objectives and strategic planning

Our team of commercial real estate experts will work closely with our client to understand:

  • Objectives and drivers
  • Optimum outcome
  • Preferred sale timing

From here, we will plan a strategic approach that is aligned with our client’s core business objectives. We’ll also set a due diligence budget.

Phase 2: Commercial real estate pricing assessment

We’ll conduct an objective pricing assessment, based on current conditions in the commercial real estate market.

Phase 3: Commercial real estate lease structure

Our commercial real estate team will conduct a comprehensive review of the proposed lease terms, in order to ensure that they meet client objects and maximise pricing potential. We will then conduct a rental analysis supported by hard evidence and a review of comparable agreements in the commercial real estate market.

Phase 4: Commercial real estate due diligence

We’ll compile your complete due diligence package, including asset presentation and a set of recommendations. Our commercial real estate specialists can oversee due diligence for your contract and Section 32 preparation (via vendor’s preferred lawyer). In addition, we can recommend and appoint external specialists with respect to:

  • Environmental
  • Geo-tech
  • Flora & Fauna
  • Cultural Heritage
  • Planning

Phase 5: Commercial Real Estate Agent tender

We’ll manage the selection of a suitable commercial real estate agent, using our tried and tested selection process. Firstly, we’ll conduct a tender process that includes requests for submissions, interviews and presentations. We’ll then assess the commercial real estate agencies against key criteria including experience, price, sales and marketing strategy, marketing costs, commissions. Finally, we manage negotiation of terms with the commercial real estate agency, including commission and appointment documentation.

Phase 6: Campaign management

Once your sale-and-leaseback is being advertised in the commercial real estate market, we’ll make sure you’re kept informed on the performance of the campaign with regular updates. We’ll provide weekly campaign reports, along with detailed feedback on the market response and pricing feedback.

Phase 7: Negotiation close

We have extensive experience managing the final negotiation of your sale-and-leaseback agreement. Our service includes reviewing and assessing final bids, along with reviewing buyer capacity, capability and their track record. We’ll plan a negotiation strategy, to ensure that the agreement is aligned with client objectives (in terms of both price and other terms), then we’ll negotiate with both the commercial real estate agent, and directly with the buyers. Once we’ve delivered a contract that meets all the clients’ requirements, we execute the contract and take receipt of the deposit. We’ll also monitor any further contract conditions and requirements to ensure that they’re completed.

Phase 8: Settlement

Our commercial property team will monitor your sale-and-leaseback transaction throughout settlement period. We’ll also review, calculate and communicate any applicable agency fees and carry out a reconciliation of marketing costs and reimbursements. We’ll ensure all transfer documents are executed by both parties, as required and attend settlement and confirmation of closure.

Questions?

If you’d like to learn more about our commercial real estate capability, and transaction advisory services, get in touch today.