Corporate Downsizing: One Active Area of Sale-Leasebacks

By Keat Foong

Sale-leaseback activity has been slow but it could pick up for a variety of reasons. Corporations are not actively pursuing them because they need cash, but they are finding other value in unlocking their real estate investments. One is the ability to gain flexibility for space reduction.

“Real Estate Alert” reported in May that the 12-building, 1.8 million-square-foot complex currently occupied by Bank of America division Merrill Lynch was being marketed and could fetch BofA $400 million. It said that under BofA’s sale-leaseback plan, BofA would sell and fully lease back the property for at least 10 years. However, the occupant, Merrill, could vacate 20 percent of the space after three years and another 20 percent after eight years. Bofa is described to be on a disposition “spree” to sell its offices around the country.

In another transaction, Karlin Real Estate purchased a 300-square-foot warehouse property located on about 30 acres in Austin, Texas, in an off-market transaction, according to Matt Schwab, co-founder &  managing director of Karlin. The sale price was not disclosed. The lease agreement gives Dell one-and-a-half years to move out of the quarters, said Schwab.

Schwab agreed that the transaction was not a “classic” sale-leaseback in which the seller needed to raise cash, but rather one in which the impetus was operational. “They are generally going through the process of selling buildings they no longer need,” he commented. “Dell ultimately needed to move out, but they needed time to do it.” Schwab agreed that it was a plus in the eyes of Karlin that the property was fully occupied at the time of purchase.

For more on evolving prospects for the sale-leaseback market, see “Corporate Disincentive,” the Finance & Investment article starting on page 45 of the December 2012 issue.