Property Insights - further your understanding of real estate and finance

Owned property is often one of the largest sources of untapped capital on the balance sheet of a business. New buildings can also absorb capital that would create more value elsewhere in the business. There are more ways to release that value than most businesses realise. If we include capital brought in to fund new development — in effect, releasing capital before it is ever tied up — there are at least ten distinct routes. They range from a simple sale of a building you no

A business that needs a new factory, warehouse or headquarters faces a simple question: who pays for it? Funding the build yourself ties up capital in construction for a year or more, and then in owning the finished building for decades after. There is another option. Third party investors will fund, or commit to buy, a new building in exchange for a long lease from the business that will occupy it. The business gets a purpose-built facility; the investor gets a long term, se

IFRS 16 is the international accounting standard for leases. Since 2019 it has required a business to put almost every lease on its balance sheet — the right to use the building as an asset and the rent it has committed to pay as a liability. For a sale and leaseback, that ended the idea of ‘off-balance sheet’ property finance. It did not end the case for doing one. The reasons a business sells and leases back its property — releasing capital without borrowing or diluting own

The most common objection to releasing capital from property is losing control of a building the business depends on. It is a reasonable concern and usually a solvable one — but only once a business is specific about which kind of control it is actually worried about, because they are not the same thing and different structures protect different ones. ‘Control’ gets used as a single word for at least three different things, and conflating them is why the conversation usuall

A lease in its basic form is a contract between a landlord and tenant. It sets out how much rent will be paid, for how long and what the obligations are on each party. In this article we will explore how different terms influence value – both from the investor (landlord) and business (tenant) perspective. Better understanding your counterparty helps both parties reach an amicable position quicker. How can it influence value so much? Two identical buildings let to the same b

An Operating Company / Property Company (OpCo/PropCo) structure splits a business in two: an operating company that runs the trade and a property company that owns the buildings. The OpCo leases its premises from the PropCo and pays rent. Nothing changes operationally — the same business trades from the same sites — but the property now sits in a separate entity that can be financed, sold, or held independently. The central idea - a trading business and a property portfolio

A forward fund is where an investor acquires a development site and pays for the building to be constructed, in stages, as the work progresses. The business that will occupy it agrees the lease terms up front, moves in on completion, and pays rent — without having funded the construction itself. The core benefit: a business gets a purpose-built facility specified to its own requirements, without the capital outlay of developing it or the debt needed to fund construction. Comm

A sale and leaseback makes sense in many situations but tends to be triggered by one of the following four scenarios: a business has capital tied up in property that would work harder somewhere else, it needs to raise money and would rather not take on debt or give away equity to do it, an exit from the business is planned, M&A where the business being acquired has real estate. These situations are all quite distinct as are their rationales. The first scenario is the mo

When a business with owned real estate changes hands, the buyer is acquiring two assets, an operating company and a property portfolio, but typically pays for them at a single multiple. The gap between what the real estate is worth through a sale and leaseback and what it contributes to the earnings multiple presents an opportunity for value creation. Please see Sale and Leaseback as a Tool for Value Creation for more detail. Before exiting, a seller needs to consider capturi

Sale and leaseback, secured lending, and equity all raise capital for a business — but they trade off very differently. Here's a high level overview on how to compare them. A business needing capital usually has three broad routes: borrow against an asset it owns, sell a share of the business, or sell the asset itself and lease it back. Each converts something different into cash, and each asks the business to give up something different in return. In our experience, busine

For a business monetising a building it owns, the biggest influences on value are not the ones people usually expect — and several of them have nothing to do with the property. The Basics There are some obvious aspects of commercial property that influence value and to some it is just location, location, location. In this article we will look at some of the principal points that impact on property value before looking in more detail at what influences investment properties –

A building's ‘value’ depends entirely on who's asking. What it cost to build, what an insurer would pay to reinstate it, what a buyer would pay for it empty and what it is worth with a leaseback attached are all genuinely different numbers. In this post we will look at how they differ and why it is important to rely on the right figure. How can there be so many different valuations? A single building can have five or six defensible figures that may be deemed ‘valuations.’ The

A sale and leaseback is when a business sells a property it owns and immediately leases it back from the buyer. The business keeps operating from the same building — it just no longer owns it. This releases working capital to the business in exchange for paying rent going forwards. The key consideration for any business when looking at a property transaction is that it does not disrupt on site operations. A sale and leaseback converts an illiquid asset (property) into capital