Sale and Leaseback: Unlocking Capital and Flexibility in Real Estate Transactions

Sale and Leaseback (SLB) is a transaction model wherein a company transfers ownership of a real estate asset to another entity or an investor, subsequently becoming a tenant through a lease agreement. This arrangement is aptly named "Sale" due to the asset transfer and "Leaseback" due to the subsequent rental agreement. Notably, the leaseback component entails a repurchase option, allowing the original seller to reclaim ownership of the asset upon lease agreement expiration. This repurchase option holds significant value, benefiting both parties involved.

On the one hand, the seller gains liquidity and ensures the ability to continue using the property and recover it through financial leasing. On the other hand, the buyer or investor obtains a temporary asset that provides secure and low-risk profitability.

The SLB model is becoming increasingly common in the commercial real estate market as it is an attractive option for companies that are not involved in the real estate sector but seek to optimize their operations by freeing up capital for investments and financial commitments in agreement with a real estate company to whom they entrust the management of their real estate asset. It is also a strategy some companies adopt in times of crisis, allowing them to capitalize without interrupting their operations.

It is important to highlight that the terms and conditions of SLB contracts, including the rental amount, contract duration, and maintenance responsibilities, are established at the time of the transaction and may vary depending on the negotiations between the parties involved.

Sale & Leaseback Transactions in Mexico

An example of an SLB transaction is the Fiesta Americana Condesa Cancun resort purchase by FIBRA Hotel (FIHO) from Grupo Posadas. In February 2018, FIHO and Grupo Posadas completed the operation valued at 2.892 billion pesos, with which FIHO began managing the five-star hotel with 507 rooms, over 200 square meters of extension, and a land area of 40,000 square meters. With this transaction, the portfolio of properties in operation managed by FIHO increased to 80, and its portfolio of properties under development closed at seven, according to data from SiiLA FIBRA Analytics and FIHO.

Similarly, in 2021, FIBRA Nova (FNOVA) announced an SLB contract with a company in the agri-food sector to incorporate 1,654 hectares into its real estate portfolio. The agreement included a triple net lease (NNN) contract denominated in dollars for 15 years, with annual increases and corporate guarantees. Thus, FNOVA began managing two properties in Chihuahua, four hours from the US border, with an annual production capacity of over 4,000 tons of pecan nuts.

Overall, Sale and Leaseback is a strategy that offers companies an effective way to manage their capital, optimize their operations, and remain flexible in a changing business environment while providing investors with a secure and profitable investment opportunity in the real estate sector. For more information about this and other commercial real estate market topics, visit SiiLA or contact us at contacto@siila.com.mx.