In an earlier post I mentioned several types of businesses that make good sale/lease-back transactions. Since then I've been asked why a business would want to take part in this type of transaction. In a sale/lease-back a owner occupant of a building sells the property and then signs a lease with the new owner to stay in the space. Often a business will do this as a way to unlock the equity that they have in their property. For example, there are several small businesses in Reading, PA that own their own property. These businesses range from retail store owners to small businesses that own the office buildings where they are located.
From time to time many small businesses run into cash flow problems. It is common to have a profitable business that for one reason or another does not have the cash or credit to meet its current liabilities. During good times, it was often possible for small business owners to refinance their properties and take cash out. In today's credit market's this is much less likely. In general, lenders have reduced the LTV that they are willing to lend, and the value of many of these properties has decreased. Business owners may still have equity in their properties, but they are unable to access it with a refinance. By selling the property, they are able to access 100% of their equity.
Many businesses rely on their location for repeat business, and are therefore reluctant to sell their properties just to access their equity. By leasing the property back, they are able to keep their location and still get the much needed cash from the sale of their property. This is why a sale/lease-back is often a good option for property owners in need of cash for their business. Do you have equity in a property in Reading, PA that you would like to unlock?