MIAMI—To monetize or not to monetize? That's the question for many corporate real estate owners assessing their situations in a recovering economy. That said, sale-leasebacks continue to be a popular strategy.
GlobeSt.com caught up with Ankur Gupta, corporate advisory partner in the Chicago Office of McDermott Will & Emery and a member of the firm's real estate group, to get his thoughts on how sale-leasebacks can unlock value in part one of this two-part exclusive interview. Be sure to check back this afternoon for part two, in which Gupta will discuss when sale-leasebacks are the best option.
GlobeSt.com: Did strategies for sale-lease back change through the downturn? Are they changing in the recovery?
Gupta: The fundamental strategies for sale-leasebacks remain unchanged despite the ups and downs in the real estate markets in the recent past. But savvy players are fine-tuning those strategies in the current recovery to gain an edge over the competition to help them offer the most attractive terms for a given transaction.
GlobeSt.com: For corporations, is monetizing real estate through sale-leasebacks still a useful option? How can it unlock value?
Gupta: Monetizing their real estate through sale-leasebacks remains a viable and, in many cases, attractive option for companies whose primary business is outside of the field of real estate. Companies that sell goods or services frequently lack in-house real estate expertise and, as a result, fail to maximize the value of their owned real estate assets. Often times when examining their various alternatives with expert assistance, companies conclude that monetizing their owned real estate assets provides them with a cost-effective and low-risk source of liquidity compared to available corporate credit facilities, a bond issuance or a conventional mortgage re-financing.
GlobeSt.com: Can you give me an example of how a sale-lease back unlocked value for a corporate real estate owner?
Gupta: Upon examining their various alternatives, a service-based company concluded that monetizing their national portfolio of owned industrial real estate assets would provide them with a cost-effective and low risk source of liquidity compared to their available corporate credit facility, a bond issuance or a conventional mortgage re-financing. The company proceeded to enter into a portfolio sale-leaseback with an industrial real estate investment trust, structuring their leases to provide them appropriate flexibility in light of their projected long- and short-term growth, cash flow needs and geographic expansion, contraction or diversification.
The company obtained approximately $100 million of working capital proceeds from the transaction which they subsequently used to fund a sizeable corporate acquisition and modernize their existing operations. Absent the portfolio sale-leaseback, the company would have been unable to fund the corporate acquisition due to insufficient equity required to consummate the transaction and would not have been able to cost-effectively and simultaneously modernize their existing operations.
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