What are the benefits of a real estate sale-leaseback deal?

Retailer Bed Bath & Beyond recently made headlines when its stock shares experienced a boost following a strategic $250 million real estate transaction. Like Sears and Macy’s before it, the struggling retailer decided to free up some liquidity in a profitable sale-leaseback deal.

New CEO Mark Tritton is wasting no time in his new role at Bed Bath & Beyond. In an interview with CNBC, he said this is just “the first step toward unlocking valuable capital.”

Is selling commercial real estate and leasing it back a good option for a struggling brick-and-mortar business?

Selling and leasing back property can be extremely beneficial to both the seller and the buyer, but business and tax considerations apply. Anyone contemplating a transaction of this kind should not only research the implications in depth but also consult a real estate expert and a legal advisor.

What are the benefits for the seller?

  • Converts equity into cash liquidity
  • Alternative funding
  • Better financing
  • Improved credit standing
  • Potential debt reduction
  • Deterrent to corporate takeover
  • Avoids usury restrictions

What are the drawbacks?

  • Loss of property value
  • Not as much flexibility
  • High rent payment
  • Risk of buyer bankruptcy

Further tax considerations, including deductions for rental payments, also apply.

While selling your property may seem drastic, it can be a shrewd business move that could change your company’s trajectory and public narrative. Bed Bath & Beyond is just one business to take this tactic, and it immediately initiated a positive reaction from shareholders.