Sale and leaseback

Sale and leaseback deal

A sale and leaseback deal is a property transaction in which an owner both:

  1. sells her property and, as part of the same transaction, and
  2. signs a lease with the buyer to stay on as a tenant of the same property

A sale and leaseback deal is effectively a financing transaction. Instead of the seller getting debt funding against the property, the seller is getting cash from a buyer. The debt funding in this case is effectively the lease commitment.

The longer the lease, the higher the quality of the tenant (known as covenant), and the lower rentals are, the lower the cap rate the seller can achieve. Which means a higher sales price for the seller.

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