All Topics / Commercial Property / Opinion on commercial lease-back?

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  • Profile photo of fxdaemonfxdaemon
    Participant
    @fxdaemon
    Join Date: 2013
    Post Count: 114

    Hi commercial experts,
    Has anyone had much experience with buying commercial with vendor doing lease-back?
    I am talking purely of commercial (ie office, industrial, retails) excluding the display homes type lease-back.

    – Is that in general a pump and dump strategy to bait the inexperienced and be taken as a red flag?
    – Should I even consider this kind of deal?
    – What are the most important questions to ask when doing due diligence for such properties?

    Thanks,
    FXD

    Profile photo of Corey BattCorey Batt
    Participant
    @cjaysa
    Join Date: 2012
    Post Count: 1,010

    Generally pump and dump – but I’m sure theres exceptions to every rule. You’d have to ask yourself why they would offload a property to reduce their flexibility and rental security. There’s the increase in liquidity which may be used to invest elsewhere, but selling a commercial asset just to get access to funds isn’t sending the best signals.

    I’ve known businesses who have sold their commercial properties with <3 years remaining, then not renew the next option and instead buy a new vacant on possession property – leaving the landlord in a sore spot.

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
    Email Me | Phone Me

    Investment Focused Finance Strategist - servicing Australia-wide

    Profile photo of fxdaemonfxdaemon
    Participant
    @fxdaemon
    Join Date: 2013
    Post Count: 114

    Thanks Corey.

    Are you saying that the lease back rental may be
    inflated by vendor to distort the true value of the
    property?

    Thanks
    FXD

    • This reply was modified 8 years, 4 months ago by Profile photo of fxdaemon fxdaemon.
    Profile photo of Corey BattCorey Batt
    Participant
    @cjaysa
    Join Date: 2012
    Post Count: 1,010

    Thanks Corey.
    Are you saying that the lease back rental may beinflated by vendor to distort the true value of theproperty?
    ThanksFXD

    That can be one of the things they do. They can also just have it on a standard rent – but leave as soon as they can, which if the property is in a difficult to rent area/type of property can completely tank the investment.

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
    Email Me | Phone Me

    Investment Focused Finance Strategist - servicing Australia-wide

    Profile photo of Scott No MatesScott No Mates
    Participant
    @scott-no-mates
    Join Date: 2005
    Post Count: 3,856

    Alternatively when companies are asset rich and cash poor, they will sell their assets and lease them back – this is a strategy by their advisors, accountant or CFO to make them look more profitable. Freeing up the capital to fund the expansion of the business or return to shareholders.

    Many accountants underestimate the value of owning their own premises – it rarely appears on their balance sheets (take a look at most listed companies and look for the properties they own – hmmm not much there, not even head office nor their production sites).

    If you have a couple of spare coins, you may consider this sale and lease back opportunity: http://www.smh.com.au/business/property/soul-pattinson-puts-building-in-pitt-street-mall-on-the-market-20160622-gppe8l.html

    • This reply was modified 8 years, 4 months ago by Profile photo of Scott No Mates Scott No Mates. Reason: additonal information
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