Marketed Process or Off-Market Sale-Leaseback?

The two labels describe a range, not two fixed procedures. At one end, an owner negotiates with a single investor, often one who approached the company first. At the other end, an advisor prepares an offering package, distributes it widely to net lease investors, sets a bid date and runs rounds of offers.

Between those ends sits the approach many privately held companies prefer: a limited process. The advisor selects a short list of investors whose buying criteria fit the property and the tenant, each signs a confidentiality agreement before receiving anything, and offers are collected on a common schedule. Nothing is posted publicly, and no sign goes up.

• One-on-one: a single buyer, the fewest people informed, no direct comparison of terms.
• Limited, invitation-only: a handful of screened investors under confidentiality agreements, offers on the same form and deadline.
• Broad marketing: wide distribution to the investor community, the largest pool of bids and the widest circle of people who know.

Every version still needs the same preparation. The buyer will underwrite your financial statements and the proposed lease whichever route you take.

In a sale-leaseback you are setting two prices at once: what the investor pays for the building and what you pay to stay in it. A single buyer has little reason to move on either unless there is a credible alternative. Competing offers give you that alternative.

The benefit is not only a higher purchase price. Competition tends to improve the parts of the deal that are harder to see on a term sheet:

• Lease terms. An investor that wants to win may accept your form of lease, your renewal options or your alteration rights instead of insisting on its own standard document.
• Certainty. When a backup bidder exists, the selected buyer is less likely to ask for a price reduction late in due diligence.
• Evidence. Owners, boards and lenders can see that the price was tested, which matters when a sale must be explained to shareholders or family members later.
• Information. Reading several offers shows you how investors view your credit and your building, including concerns you can address before signing.

Competition has costs too. It takes longer to prepare, more parties review your financial information, and a process that is run widely and then fails can leave a property looking shopped.

For an operating company the building is not an investment listing. It is where employees work and where customers and suppliers visit. News that the company is selling its real estate can be read the wrong way, even when the reason is a planned investment in growth.

• Employees may assume the business is closing or moving.
• Customers and suppliers may question financial stability and tighten terms.
• Competitors may use the news in sales conversations.
• Lenders may be surprised, which is a poor way to begin a consent request.

An off-market or limited process keeps the circle small. Confidentiality agreements help, but the practical protection is the number of people who receive the package and how carefully they were chosen. Decide in advance who inside your company knows, what you will say if someone asks, and when you will tell your lender.

Investors and their brokers contact owner-occupiers directly, sometimes with a letter that names a price. An unsolicited offer is useful information, and it deserves a measured response instead of a quick yes or a quick no.

1. Do not sign an exclusivity or no-shop provision while you are still learning what the property and lease are worth to other buyers.
2. Ask for the full proposal in writing: price, rent, annual increases, lease term, renewal options, repair responsibilities, guaranty, due diligence period and deposit.
3. Ask how the buyer will fund the purchase and what approvals it still needs.
4. Check the rent, not only the price. An attractive price supported by rent above what the building would command on the open market is a cost you carry for the whole lease.
5. Decide whether to test the offer against a short list of other investors before negotiating further.
6. Have your attorney and CPA review the structure before you respond with a counteroffer.

A buyer that asks for exclusivity before you have compared anything is asking you to give up your main source of negotiating strength. Grant it only after the key price and lease terms are agreed in a letter of intent.

Neither route is right for every company. The decision usually turns on how sensitive the news is, how standard the property is, and how much time you have.

• ✓Would news of a sale cause real concern among employees, customers or lenders, or is it easy to explain?
• ✓Is the building a common type that many investors buy, or a specialized facility that only a few will underwrite?
• ✓Are our financial statements ready for several parties to review under confidentiality agreements?
• ✓Do owners, a board or a lender need to see that the price was tested against other bids?
• ✓Is there a deadline, such as a loan maturity or an acquisition closing, that limits how long a process can run?
• ✓If we already hold an offer, do we know how its rent and lease terms compare with what others would propose?

A specialized building with a short list of logical buyers often suits a limited process, because wide distribution adds exposure without adding real bidders. A standard, well-located building leased to a company with strong financials may attract enough interest to justify a broader effort. A company with a firm deadline and a credible buyer already at the table may accept a one-on-one negotiation, provided the terms have been checked against the market by someone who sees these deals regularly.

As the occupier's representative, TAG helps owners decide how wide to go, selects and screens the investors invited, and keeps the lease negotiation moving alongside the price so that confidentiality is not bought at the expense of the terms you will live with.