12 Questions to Ask a Sale-Leaseback Advisor

Interview at least two advisors and ask each the same questions in the same order. You are testing three things: whose interests the advisor serves, whether it understands the lease as well as the sale, and how it behaves when a deal gets difficult. Vague answers, or answers that return to price every time, are informative.

1. Send the questions in advance so the advisor can prepare real examples.
2. Have your CFO or controller and your real estate attorney join the meeting if possible.
3. Ask for the people who would actually do the work, not only the person who wins the business.
4. Write down each answer and compare notes afterward.
5. Follow up on anything that was promised verbally by asking for it in the engagement agreement.

• 1. Whom do you represent in this transaction? A good answer is short: the advisor represents your company alone, as seller and future tenant, and will say so in the engagement agreement.
• 2. How much of your work is for occupiers, and how much for landlords and investors? A good answer gives an honest description of the practice. An advisor that mainly serves investors is not disqualified, but you should understand where its repeat business comes from.
• 3. Do you or your firm have current business with any investor likely to bid? A good answer discloses relationships up front and explains how they would be handled. Be wary of an advisor who already has a specific buyer in mind before learning your goals.

These three questions come first because every later answer depends on them. An advisor with a divided loyalty can give technically sound advice that still tilts toward getting a deal done at a price, whatever the lease looks like.

• 4. What would our building rent for on the open market, and how do you know? A good answer refers to comparable leases for similar buildings and explains the adjustments. An advisor who can only discuss sale prices is missing half of the valuation.
• 5. How will you help us choose between a higher price with higher rent and a lower price with lower rent? A good answer describes a model of total rent over the full term next to net proceeds, and asks what you plan to do with the cash before recommending anything.
• 6. What will reduce the cash we actually receive? A good answer lists mortgage payoff, prepayment charges, transfer taxes, closing costs, fees and taxes on gain, and sends the tax question to your CPA instead of estimating it.

Listen for whether the advisor volunteers the downside of above-market rent. Rent set higher than the market supports a bigger price today, and it also raises your cost for years and can complicate a later sale of the business. An advisor who never mentions that is selling you the price.

• 7. Would you run a broad process, a limited one, or approach a single buyer, and why for us? A good answer weighs competition against confidentiality for your situation and does not apply one method to every client.
• 8. How will you protect confidentiality with employees, customers and lenders? A good answer covers confidentiality agreements, a controlled data room, site visits arranged discreetly, and an agreed plan for what is said internally and when.
• 9. How do you evaluate buyers beyond their price? A good answer mentions proof of funds, approvals still required, track record of closing on agreed terms, and how the investor behaves as a landlord after closing.

Ask a follow-up to question 9: what do you do when the selected buyer asks for a price reduction during due diligence? You want to hear about preparation that prevents it, such as sharing environmental and condition reports before offers are due, and about keeping a second bidder engaged until the deposit is non-refundable.

• 10. Who negotiates the lease, and when does that start? A good answer is that the key lease terms are negotiated in the letter of intent, at the same time as price, by the same people, and then documented with your attorney. Leaving the lease until after the price is agreed gives away your strongest position.
• 11. Which lease terms do you expect to matter most for our business? A good answer is tailored. It should touch on escalations, repair and replacement responsibility, assignment and change of control, alteration and expansion rights, renewal options and surrender, and relate them to what you said about your plans.
• 12. How are you paid, by whom, and what is the term of the engagement? A good answer is written down: who pays the fee, how it is calculated, when it is earned, whether anything is owed if you decide not to proceed, and how the agreement can be ended.

A fee tied only to the sale price rewards a higher price whatever the lease costs you. That does not make the structure wrong, but it is a reason to ask question 5 carefully and to judge whether the advisor's recommendations hold up when the lease is counted.

After the interviews, score each advisor on a few plain tests.

• ✓Did the advisor ask about our goals and our plans for the building before talking about price?
• ✓Did the advisor state clearly that it represents only us?
• ✓Did the advisor discuss market rent with evidence?
• ✓Did the advisor raise risks and trade-offs without being prompted?
• ✓Did the advisor defer legal, tax and accounting questions to our attorney and CPA?
• ✓Did the advisor avoid promising a specific price or timeline before seeing our financials and the property?
• ✓Would we be comfortable with this team speaking to investors on our behalf?

We are glad to be asked every question on this list. TAG represents tenants and buyers, so our answer to the first one is simple: in a sale-leaseback we work for the company that is selling and staying.