Key findings of the ‘Market for Sale and Leasebacks’ – Colliers International’ Eastern Europe Research Report:
Given the current cyclical and structural downturn in the real estate investment market, Colliers International’ report looks at one alternative to generate capital from commercial real estate, the Sale and Leaseback.
Colliers’ analysis of arms-length, investment market transactions across Europe since 2007 show that SLBs as a proportion of all transactions increased during the peak financial crisis period from end of 2007 to end 2009, rising to around 13% of all market activity from an average of 10% over the period.
Damian Harrington, Regional Director of Research for Colliers International commented: ”Whilst SLBs have represented only 4.5% of all transactions in Eastern Europe to date, current market conditions comprising a combination of restricted credit, muted economic growth and subdued debt provision provide a strong platform for Sale and Leaseback (SLB) investment transactions to occur. If current market conditions persist, and we suspect they will, this could be a growing source of capital raising and investment deals over the short and medium term”. Damian Harrington also points out that “SLB transactions need not just be associated with the main commercial property sectors. Our analysis of historic SLB transaction activity shows that they can be conducted across a variety of sectors. It is a relatively liquid sub-sector in its own right with high profile players active in the market.”
The report highlights that with changes in the long held view that ‘real estate should remain in corporate hands as a cultural norm’, SLBs could become a significant source of investment transactions longer term. This is underpinned by the fact that freehold assets held by corporate bodies in Europe amount to an estimated 83% of the total commercial real estate market.
Tony Pinnell, Director of Property Finance for Colliers International Poland points out that “SLBs can help corporate entities raise cash whilst providing the investor with access to secure, long-term income streams, – a transaction medium that can benefit both parties. From an occupier perspective, the major benefits are that the corporate occupier maintains control over the day-to-day management and planning of the business. From an investor perspective, a strong vendor covenant will allow an investor to secure more favorable capital financing terms, especially if a vendor can opt to agree to 10 year terms or longer.”
The report also highlights a few high-profile mistakes with past SLB transactions and Tony Pinnell was keen to stress the importance of securing proper advice when considering an SLB deal. “How assets are valued, how the capital is raised and structured can positively impact an operational business and how a sale and/or leaseback (or leases) are treated in legal, tax, accounting & financial terms can create significant complexity and varied outcomes and thus third party professional advice should always be taken in advance of a transaction being undertaken.”