Is Sale/Leaseback Right for You?

More and more organizations are monetizing their own real estate portfolios to unlock the value residing within them through what is known as the Sale/Leaseback Strategy.

Turning the corner into Q4, it’s already etched-in-stone that 2023 has been an unpredictable and counter-intuitive year.

A year of certain recession or maybe not. Of low consumer confidence yet high consumer spending. Of strong stock and bond markets until they weren’t. The job market remained hot … in fact, too hot for the Fed. (Since when was strong employment such a bad thing)? As a result, indications point to another rate hike which means higher borrowing costs for consumers and businesses. Including banks and credit unions.

For many financial institutions, the current interest rate environment is a conundrum. In what is generally a strong economy, banks and CU’s want to grow, yet the high cost of capital is a tough pill to swallow. For this reason, more and more organizations are monetizing their own real estate portfolios to unlock the value residing within them through what is known as the Sale/Leaseback Strategy.

The Win-Win of Sale/Leaseback

In a Sale/Leaseback, a property owner – i.e., bank or credit union – sells one, some, or even all its commercial assets to an investor. But rather than relocating, the bank/CU remains solidly in place as a renter. In the process, the investor has acquired an asset that – they hope – will increase in value over time while the seller receives a significant cash infusion that can be used for immediate growth without disruption to its staff or current operations.

A recent American Banker article predicts that Sale/Leaseback transactions will remain a viable capitalization strategy for regional banks and credit unions as long as interest rates remain relatively high … i.e., the foreseeable future.

Written by John Reosti, the article cited the case study of Atlantic Union Bank (AUB) which recently employed a Sale/Leaseback strategy on 29 of its 109 Virginia-based branches. The deal netted AUB approximately $22 million after taxes.

Beth Shivak, Atlantic Union Bank’s senior VP said, “The sale/leaseback of these properties was driven by our ongoing assessment of our balance sheet and enables us to turn a fixed asset into an earning asset.” Here’s a link to the entire story.

Turning Old Money into New Investment

Under the right conditions, our company is bullish on Sale/Leasebacks not only for branches but for headquarters and call center facilities, as well. In our experience, many of these non-revenue generating assets are at or near their all- time highs in value and will require significant capital infusion in the coming years. In addition, many of these real estate assets are significantly or fully depreciated, further reducing the financial value to the organization.

Rather than tie up additional funds in their HQ, many banks and CUs are monetizing these properties and remaining physically on-site while re-investing the proceeds into revenue-generating growth initiatives ranging from branches to new technologies.

Sale/Leaseback isn’t right for every organization, but in this dynamic interest-rate driven environment, accessing capital in this way can be an optimal way to fund your future.