Sale-leasebacks Earn a Bigger Role in Capital Strategies
As operators and private equity sponsors look for ways to fund acquisitions and pay down debt, sale-leasebacks free up capital without giving up operational control of real estate
Corporate operators and private equity sponsors are increasingly using sale-leasebacks in their capital strategies, whether to fund acquisitions, manage costs, or improve their balance sheet position.
When companies own significant real estate, this structure provides access to the full property value without disrupting operations, says Zachary Pasanen, managing director and co-head of North American investments at W. P. Carey.
"Companies often have significant capital tied up in real estate, so a sale-leaseback allows them to monetize the real estate fully, lock in a very long-term contract, and fix their rent for a sustained period of time," Pasanen says, adding that proceeds are commonly used to shore up balance sheets, fund growth initiatives, pay down expensive debt, or address near-term obligations coming due.
As more companies weigh their options for unlocking the value of their real estate, the structure's appeal comes down to how well it fits broader capital goals.
Private Equity Sponsors Find Value in the Multiple Gap
Private equity firms have become steady users of sale-leasebacks to finance corporate acquisitions, Pasanen notes. This structure provides an opportunity to capture value from the gap between the real estate multiple and the acquisition multiple.
"You can often find strong accretion by utilizing the sale-leaseback," Pasanen says. He adds that prudent CFOs and sponsors are factoring it into M&A strategies as an additional way to capitalize acquisitions.
Corporate operators are also using this structure for other balance sheet purposes. For example, companies looking to pay down near-term or expensive debt may apply sale-leaseback proceeds while maintaining operational control of their facility.
"The way we structure a lease gives them effectively the same controls they had when they owned the facility," Pasanen says. He explains that tenants can make alterations within reason, and they remain responsible for taxes, maintenance and insurance, much as they were before the deal closed.
Pasanen also notes that W. P. Carey is a long-term capital partner to its tenants and can support their real estate needs as they evolve, with the ability to finance expansions, renovations or energy retrofits at their leased properties.
Capital Flows In as Appetite Stays Strong
Companies holding real estate often find the structure attractive because it helps them unlock a property's full market value. Pasanen notes that mortgage financing, by contrast, typically returns around 50 to 70 cents on the dollar.
Corporate demand for sale-leasebacks is met by a market with no shortage of capital supporting it. Pasanen expects the sale-leaseback market to remain active, noting that a growing pool of investors are entering the space.
For specialized facilities where tenants have invested heavily and relocation is expensive, Pasanen says investor demand remains particularly strong. This suggests the structure will remain a viable option, particularly for companies whose real estate is critical to their operations.
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A Balancing Act Between Deployment and Discipline
Net lease continues to be one of the core investment strategies employed in the global real estate market, but conditions in the US and Europe do not strictly mirror one another, explain Christopher Mertlitz, Head of European Investments, and Zachary Pasanen, Co-head of North American Investments. However, across both of these regions, a common thread is emerging amid an uncertain macro environment: investors are balancing pressure to deploy capital with a more cautious approach to pricing, risk and long-term tenant viability. Download W. P. Carey’s keynote interview from the PERE Net Lease Report to learn more about the differences between the US and European net lease markets, which asset classes are garnering the most interest from investors, where deal flow is coming from and more.
Sale-leasebacks Gain Ground as Flexible Capital Solution
With corporate debt maturing and capital market and tariff uncertainty persisting, more companies are turning to sale-leasebacks to access capital quickly, without sacrificing control of their key real estate. “Sale-leasebacks are a unique option to provide liquidity, especially when traditional lending becomes less accessible and more expensive,” says Zachary Pasanen, managing director, investments, W. P. Carey. “Interest rates are still elevated, so companies that own their real estate are leaning into sale-leasebacks to pay off expensive debt and shore up their financial position.” As a result, this long-standing strategy is seeing increased interest as operators across industries navigate rising debt costs, looming maturities and a cautious lending environment. Meeting liquidity needs quickly In a typical sale-leaseback, a company sells a property it owns and simultaneously leases it back from the buyer. This frees up capital previously tied up in real estate while allowing the company to keep operating in the same location. “W. P. Carey is unique in that we don’t use asset-level financing,” says Pasanen. “We’re an all-equity buyer with access to multiple forms of capital, which allows us to close quickly on deals that meet our investment criteria.” He points to a recent nine-figure deal that closed just 22 days after signing the letter of intent, highlighting the advantage of working with a buyer that has decades of broad experience and ready access to capital. For companies looking beyond traditional debt financing, sale-leasebacks are a great option, particularly when you can find a buyer that offers speed and certainty of execution. “It allows the company to focus on their core competency, whether that’s a product or service, rather than tying up capital in real estate,” says Pasanen. What to consider before moving forward For companies exploring this strategy for the first time, Pasanen has a few words of advice, starting with the accounting implications. “Talk to your accounting department beforehand to make sure you understand how the lease will be treated on the books,” says Pasanen. From there, he says it’s about evaluating all your options. Many companies are surprised to learn that even secondary or tertiary locations can appeal to the right buyer. “We’re location agnostic,” says Pasanen. “As long as we’re acquiring mission-critical real estate with a long-term commitment from a company, we’re willing to consider a deal, irrespective of location.” Looking ahead, companies are likely to encounter escalating expenses and more restrictive lending environments, positioning sale-leasebacks as an effective means to swiftly generate capital and align with long-term strategic goals. “With the access to capital that we have,” says Pasanen, “we really view ourselves as a leading provider of sale-leaseback financing, delivering the type of solutions operators need in order to fund their next phase of growth.”
What the Latest Rate Cuts Mean for the Net Lease Sector
The persistent high cost of capital, along with the fact that large amounts of corporate debt are set to mature, have been ongoing challenges for investors. The Fed’s recent rate cut – the first in over four years – leaves many speculating how investors will fare. “Impacts from these changes will take some time to see,” says Zachary Pasanen, managing director, investments, at W. P. Carey. “I don’t necessarily believe we’ll experience a rush of investment overnight. Everyone is still in the process of figuring out what the environment will look like, and there are also geopolitical situations at play.” Cap Rates and Market Sentiment Pasanen suggests a positive outlook for the net lease sector, noting that while volumes are down compared to the previous year, the sector’s resilience remains. He explains that net lease investments function similarly to bond instruments, and with rates being cut, he doesn’t believe the risk profile changes that dramatically. “I think the risk paradigm is still very much in that 7%-8% cap range,” says Pasanen, noting that while conditions may eventually spur more net lease activity, it won’t take place immediately. He also cautions that investors should not get too caught up in “rate cut mania” and risk comprising spread. Focusing on fundamentals and maintaining a disciplined investment approach remain as important as ever. Relaxed Interest Rates and the Financing Landscape Funding business growth and quickly accessing capital have left many corporates looking for alternatives to traditional financing. With the Fed’s recent rate cut, Pasanen believes that sale-leasebacks will continue to be an attractive option. He further notes that while there have been pockets of “stress” in the market, these aren’t the same as “distress.” “Many lenders were willing to accommodate borrowers and work with them,” says Pasanen. “This group made it through this past year and is saying, ‘Okay, I’ve extended the maturity of my debt and identified some dislocation among acquisition targets, and now might be a good time to raise capital and grow my business.’” However, as these businesses return to banks to raise more capital, financial institutions may have reached a limit in how much they can help, a scenario where sale-leasebacks can be beneficial. “W. P. Carey has been in business for over 50 years,” says Pasanen. “We’ve been through numerous market cycles and have a lot of capital to deploy. As the market recalibrates, we’ll continue to do what we do best – work with corporate owners to unlock the value of their real estate through sale-leasebacks.”