The New Trend–Sale-Leaseback Properties

There is a trend that seems to be growing for corporate sale-leasebacks as one group wants to get unused space off their books, and another group seeks ownership of business-related properties.  Sellers are using funds they earn from these transactions to expand their businesses or to increase their value or dividends, but there are other less traditional reasons too.  There are new lease accounting rules that now force companies to mark properties they lease as debt which has made many businesses evaluate if they need all of the space they have.

Some companies are considering the sale-leaseback options because they sense interest rates will go higher sooner rather than later, so they want to make purchases before that happens.  If interest rates do begin a steady climb it will affect how expensive properties will be going forward.

It helps that there are still a lot of buyers in the market right now. Whether properties are expensive or not, most cities do not see problems in finding buyers.  Buyers see these properties as a plus because they are investing in real estate that is already occupied so there is an immediate return on the investment.  Foreign investors have also been active in purchasing many of these single tenant properties.

In 2017 sales of these single-tenant properties that changed hands increased 32.5% on properties valued at minimally $2.5 million.  Often these properties changed hands as part of a sale-leaseback transaction.  That growth has carried into 2018 according to a brokerage specialist located in New York City.  More than one factor is involved in driving this activity, which could indicate it will be sustained—at least for the near term.  Factors that play a part in sale-leaseback attractiveness include corporate strategy regarding the ownership of real estate, and cap rates that very solid right now.

One real estate service firm, CBRE, has been involved in awarding just shy of $1 billion in sale-leaseback properties in the first quarter of 2018 alone.  For some of these buyers, sale-leaseback properties are seen as annuity bond-like investments.

The market for sale-leaseback will likely remain strong as long as corporations see owning unneeded property as a tax liability and as long as interest rates remain low.  As office properties become rarer, these properties may continue to be attractive for many investors.

If you would like more information regarding buildings available in the greater Boston office market, contact Jeremy Cyrier at [email protected] or by phone at 617-340-8520.

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