If it appreciates, buy it, If it depreciates, lease it.
Andy talks about the arguments for Corporate Property Leasebacks….
Not a catchline I came up with but one attributed to J Paul Getty the billionaire oil tycoon. These days a lot of people use the phrase when talking about people who buy private jets or yachts but is it something in this market that has some resonance in the property world whether residential or commercial?
At Harris Lamb and in our Corporate Support and Investment teams we are seeing a resurgent interest in companies looking to release Capital Sums from the property that sits on their balance sheets to invest in their business – where the returns are greater. It may not just be that returns on Capital are greater out of property but that Capital can more easily be raised from a sale and leaseback than say turning to their Banks for loan monies that may in part be secured on their property anyway.
A few indicators of the attraction of raising money from a leaseback have become apparent over the last 6 months. Earlier this year in February, Tesco announced the latest in a series of sale and leaseback arrangements designed to free up cash from their vast property portfolio. The supermarket sold 10 existing stores and a development under construction raising at least £450 million. This Tesco deal was their fifth since 2009 with total released funds estimated at £2.6 billion.
The food supermarket sector is one that has focused quite a bit on the sale and leaseback and the news this morning that the Co-operative Group is to market its new headquarters in Manchester which they hope to raise £150 million from to “help finance the Co-op’s expansion plans”.
The final quote from the Co-op about releasing cash to fund expansion is a telling one. If you need advice on packaging some of your property assets then we can provide the advice and place suitable investments on a leaseback to help release Capital.
The sale and leaseback is also more in favour now especially if your view is that property values may depreciate then in J Paul Getty’s words; “lease it”.
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