“Real estate is not a core business of Bank of America,” said Bank of America spokeswoman Kelli Raulerson.
In a Boston.com article published on February 14, 2012 by Todd Wallack and Casey Ross, Raulerson noted that the bank is considering selling office buildings across the country. She explained that the sale of office towers across the United States would allow them to streamline their operations.
Many businesses own their own real estate, but consider equity invested in real estate to be too expensive on their balance sheet.
For example, if Bank of America makes a 12% return on their investment owning office towers across the United States, but earns 18% on capital invested in their business, why not free up the capital earning 12% and reinvest it at 18%? (These numbers are for example purposes only. We do not purport to represent Bank of America’s weight average cost of capital).
A sale and leaseback provides you with:
- Control: You still have it when you are leasing
- Opportunity Cost: Capital often earns higher returns in your business
- Flexibility: Leaseback affords you flexibility to expand and contract
- Accounting: Get that debt off your books and capitalize your real estate across your lease term
Bank of America has concluded that their money is best spent elsewhere, and that given the recovery of the commercial real estate market, it is time to sell off billions in non-core assets, which it has been doing over the past few years.
Why then would you consider a sale and leaseback of your commercial real estate? Not everything that is good for Bank of America is good for you, but it maybe they are onto something worth considering.
About the Author: Jeremy Cyrier, CCIM is the President of MANSARD, a market research driven commercial real estate brokerage and advisory firm, and member of the CCIM Institute faculty. You may reach Jeremy at Jeremy@Mansardcre.com.
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