Money & Finance › Commercial real estate lending › Other ways to finance a building: seller notes, leasebacks, PACE
Sale-leasebacks: selling the building and renting it back
· Asset or instrument
Fact, law or dataA rule, statute, definition or measured number.
A company that occupies its building sells it to an investor and signs a long lease to stay, turning the real estate into cash.
See it on the Money & Finance map →How it works
Typical deal: the seller-tenant signs a 15–25-year absolute-net lease, paying taxes, insurance and repairs, with rent bumps of about 2% a year. The price is the rent divided by a cap rate, recently about 6–8% for solid tenants. The seller frees up to the building's full value, versus 60–75% from a loan, and rent is tax-deductible. It gives up future appreciation, and the sale may trigger capital-gains tax. Sears sold 235 stores to the REIT Seritage in 2015, then went bankrupt in 2018.
Why it matters
Companies use it to fund growth or pay down debt; investors get long, bond-like rent. The tenant's credit, more than the building, sets the value.
Facts, rules and data
Recorded deeds and lease memoranda, net-lease REIT reports (Realty Income, W. P. Carey and others), and SEC filings for deals such as Sears–Seritage.
Debates and risks
Whether sale-leasebacks strengthen companies or, as critics argue of some private-equity deals, strip assets and add rent burdens before a bankruptcy is debated.
Connections (3)
▸Sale-leasebacks: selling the building and renting it back are a favorite deal for net-lease Real estate investment trusts (REITs)Fact, law or data
The connection
Net-lease REITs such as Realty Income, W. P. Carey and Agree Realty buy buildings from companies and lease them back on 15–25-year absolute-net leases. The REIT gets steady rent with bumps and no operating costs; the company gets cash. REITs fund purchases with stock and bonds, so their cost of capital decides what cap rates they can pay.
When and why
In the US since the 1970s, accelerating in the 2010s; W. P. Carey has done sale-leasebacks since its founding in 1973.
How we know
REIT 10-K filings list tenants, lease terms and acquisition cap rates; deal announcements disclose sale-leaseback volumes.
Debates and risks
Whether net-lease REITs can keep buying when their own borrowing costs exceed the cap rates on offer, as in 2023, is debated.
▸Sale-leasebacks: selling the building and renting it back are often financed with Credit-tenant-lease (CTL) financing: lending on the tenant's creditFact, law or data
The connection
After a sale-leaseback, the buyer owns a building with one long lease to the seller. If that tenant is investment grade and the lease is bondable, the buyer can borrow most of the price as a CTL loan paid off by the rent, so the deal works like financing the tenant's credit.
When and why
In US net-lease deals for retailers, drugstores, offices and distribution buildings with investment-grade tenants.
How we know
Private-placement CTL bond records and investor reports from insurers and net-lease buyers.
Debates and risks
If the tenant is downgraded or goes bankrupt, as Rite Aid did in 2023 and 2025, the loan's value falls back on the empty building.
▸Sale-leasebacks: selling the building and renting it back are a common funding tool for chains in Retail real estate: struggling malls, resilient strip centersFact, law or data
The connection
A retailer that owns its stores can sell them to an investor, often a net-lease REIT, and lease them back for 15–25 years. The chain gets cash to pay debt, buy back stock or fund growth; the buyer gets long rent backed by the tenant's credit. In retail, this can strengthen chains or, critics say, load weak ones with rent.
When and why
Common among US retailers and restaurant chains; examples include Sears–Seritage (2015) and many grocery and drugstore chains.
How we know
Recorded deeds and leases, SEC filings of retailers and net-lease REITs such as Realty Income, and transaction databases.
Debates and risks
Whether sale-leasebacks helped push chains such as Mervyn's (bankrupt 2008) under is debated; others credit them with rescuing companies.