Mesa Real Estate assembled the property of energy portfolios over a period of two and a half years.

MIAMI—If you want an alternate view on sale-leasebacks, ask the attorneys that work out the details. caught up with Joseph M. Marger, a partner at the law firm Reed Smith, to get his thoughts on the state of the sale-leaseback market in part one of this two-part interview. Be sure to come back this afternoon, when Marger will discuss when sale-leasebacks work best and the challenge involved in getting these deals done. Did strategies for sale-lease back change through the downturn? Are they changing in the recovery?  

Marger: Although capital was tight, companies were not expanding so demand was somewhat flat. At the same time, more players entered the sale-leaseback lending market in search of better returns, creating more competition for quality transactions. Sale-leaseback finance companies had to be more creative to unlock value for potential tenants. For corporations, is monetizing real estate through sale-leasebacks still a useful option? How can it unlock value?

Marger: Yes. Now that corporate borrowing rates are moving up, sale-leaseback financing will be a more viable option. The sale-leaseback allows companies to unlock 100% of the trapped value of their real estate as opposed to the lower LTVs of a mortgage financing. It can provide cash for expansion or operations without tying up a company’s line of credit. Can you give me an example of how a sale-lease back unlocked value for a corporate real estate owner? 

Marger: We’ve done numerous transactions where the sale-leaseback was a key component of a larger acquisition, or was the best way to finance an expansion of a plant or key facility, or was combined with TI financing to refurbish an aging headquarters. Additionally, as mentioned, the company can utilize the rent from the lease for more favorable accounting treatment.