Sale and Leaseback Transactions and REITs Are a Way to Raise Capital

More opportunities to raise funds for investing in the commercial real estate segment

Current situation on the market allows for the amount of free capital to give companies easy access to investment resources in the form of leasing, loans or financing with private equity. The investors are constantly looking for ways to get the cheapest capital for development while optimizing profits and revenue.

One way to raise funds is through sale and leaseback transactions. According to Walter Herz experts, the potential revenue from appropriate structuring and approach may be significantly greater. - In Poland, such transactions are gaining popularity among such companies as pharmacies, retail chains, DIYs, distribution centers and manufacturing companies – enumerate the experts.

Sale and lease back opportunities

Taking into account the sale and leaseback as a source of funds for expansion or other core business enhancement purposes, the companies are trying to compare the benefits of this type of transactions with traditional financing. Walter Herz advisers point out that the advantage of the sale and leaseback solution is high level of control that the company holds over the property as a tenant. Including, in particular, the flexible opportunity to expand according to changing needs or the possibility of subletting the property.

Specialists explain that sale and leaseback transactions can be organized in a variety of ways and can benefit both sellers and buyers. All parties, however, must consider all business and tax advantages and disadvantages, restrictions and risks associated with them and the consequences of the subsequent long-term bilateral arrangement.

Increase in the number of transactions

Experts note that last year, only a few companies decided to raise capital from the sale and leaseback agreements. - We are currently advising on a number of such transactions, which is an interesting change, given that in recent years, such decisions have been taken sporadically -- says Bartłomiej Zagrodnik, CEO of Walter Herz. – We have a lot of buzz in terms of sale and leaseback deals. Apart from releasing the funds for real estate development, the reasons why companies sell real estate in order to lease space from buyers are to willingly dispose of the obligations of the owner or to reduce the tax liabilities. Motivation also comes from maximizing potential and accelerating development through the sale of the, so called, hard assets - explains Bartłomiej Zagrodnik.

Walter Herz CEO explains that thanks to the sale of the buildings and their subsequent lease, the companies get rid of their balance sheet items, which are associated with labor-intensive handling and permanent property management, which is not their core business. As a result of the transaction, they improve their financial results. Leasing is less expensive and more flexible solution. Bartłomiej Zagrodnik points out that in this case it is very important to prepare appropriate solutions and provisions that will meet the expectations of the future tenant and truly maximize the potential of the transaction.

Sale and lease back solutions and REITs

With the sale and leaseback agreements the range of negotiations is much broader than in the case of typical lease or sale of the office space. It is necessary to prepare the agreements themselves, both for sale and for lease, which include a number of provisions not covered in the standard contracts - emphasizes Bartłomiej Zagrodnik.

The scope of the consultation and the proper preparation of such a transaction requires a deep understanding of the process and the structure of the transaction. Only then can we increase the revenue and achieve the highest rates of return, inform Walter Herz exerts. They point out that in case of sale and leaseback transactions, it is very important for the buyer to conduct due diligence, and to clearly identify certain issues, so that the relationship between the buyer and seller is more comfortable in the future.

New financial instrument

Sale and leaseback transactions are an alternative to REITs, which are currently entering the market. A Real Estate Investment Trust which is due to enter into force in early 2018, will be a tool for companies looking for this type of investment product. REITs are instruments which have not been available in our country until now. They will allow to mutually invest in real estate, and they will open the door to the capital of numerous investors for the companies that run the projects.Due to the introduction of new regulations, everyone will be able to become a shareholder in a company and invest in the development of the project run by the company. Walter Herz consultants admit that it will be an additional mechanism to provide companies with financing for commercial investments and support the development of this segment of the real estate market in Poland.

Author: Walter Herz

About WALTER HERZ

Walter Herz is a leading Polish company operating in the real estate development sector, providing comprehensive, specialized consulting services. The company offers comprehensive services to the entities associated with real estate market, advising commercial tenants, property owners and investors. It assists companies in finding and leasing space as well as commercializing investments.

The company provides investment consulting services, develops financial analysis, and assists clients in managing and administrating projects, based on comparative analysis and market research.

Walter Herz consultants are looking for opportunities to take advantage of the full potential of the market to achieve results that exceed customer expectations. The company structure includes specialized departments that team up project managers, who perform dedicated tasks, which allows for maximizing the value of customer transactions. The agency also provides architectural support.

The company cooperates with private and institutional investors, real estate developers and investment funds, providing clients with full access to information, contacts and market analysis.

The agency is affiliated to organizations and associations supporting the development of the BPO/SSC sector in Poland. Striving for the highest level of professionalism in cooperation with customers and business partners, as well as the highest ethical level of services provided, the company introduced the Code of Good Practice.

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Sale and Leaseback Transactions and REITs Are a Way to Raise Capital

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