Sale and leaseback deals: pros and cons for owner-occupiers and investors

If a company’s core business can generate profits of 15 per cent to 20 per cent, it makes sense to allocate capital into the core business and away from real estate, where returns are likely to be in the 6% to 8% range.
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A sale and leaseback is an arrangement where a business sells one of its real estate assets to an investor (or lender) and then immediately leases it back for the long term. These arrangements are more common in the US than in Europe; however, they are a salient feature of life sciences real estate and merit analysis by both investors and owner-occupiers.

In this article we examine the advantages and disadvantages of sale and leaseback arrangements from two viewpoints: first, that of the owner-occupier (who would become a tenant if the sale and leaseback deal goes ahead); second, that of the investor (who would become a landlord if the sale and leaseback deal goes ahead). We then look at five specific deals in Europe (two in the UK, two in the Netherlands and one in Germany).

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