Who Should Be on Your Sale-Leaseback Deal Team?

Advisors can do most of the work, but they cannot decide what the company wants. One person inside the business should own the transaction: usually the CFO in a larger company, or the owner in a smaller one. That person sets the objectives, controls who knows about the sale, gathers documents and makes the calls when advisors disagree.

Give the lead two things early. First, a written statement of goals: how much cash is needed and for what, how long the company expects to stay at the site, and what operating flexibility it must keep. Second, authority. Investors and advisors move faster and take a seller more seriously when a single decision-maker is clearly in charge.

Operations should have a voice as well. The plant manager or practice administrator knows what the building needs over the next decade, and that knowledge belongs in the lease.

• Broker or real estate advisor. Estimates market rent and value, recommends how to go to market, identifies and screens investors, runs the offer process, and negotiates the business terms of the letter of intent, including price and the main lease terms. Coordinates the schedule through closing.
• Real estate attorney. Drafts or negotiates the purchase and sale agreement and the lease, reviews title and survey matters, handles the closing documents, and advises on legal risk. Choose a lawyer who regularly handles commercial leases and sales, since a general corporate lawyer may not see these documents often.
• CPA or tax advisor. Estimates the tax on the sale, advises on the structure, and determines the accounting treatment of the transaction and the leaseback. Explains the effect on financial statements that lenders and owners will read.
• Lender. Provides the payoff figure and any prepayment charge for an existing mortgage, releases its lien at closing, and confirms whether other credit agreements need a consent or amendment for the sale and the new lease.
• Environmental consultant. Performs or updates the environmental site assessment that buyers and their lenders expect, and advises on any follow-up work.

Other specialists join as needed and are usually arranged by the attorney or broker: a title company, a surveyor, an engineer or roofing consultant for a property condition review, and an appraiser if an independent opinion of value is useful. Companies with outside investors or a board may add corporate counsel to manage approvals.

Owners sometimes bring the CPA in once a price is agreed. That is late. The tax and accounting consequences depend on how the deal is structured, and some structural choices are difficult to change after a letter of intent is signed.

Two accounting points show why. Under US GAAP, when a transfer qualifies as a sale the seller-lessee removes the building from its books and applies lessee accounting to the leaseback, which means recording a right-of-use asset and a lease liability. And a term that looks attractive commercially can change the result: published guidance on ASC 842 explains that an option for the seller to repurchase real estate generally prevents sale treatment, in which case the proceeds are recorded as a financing and the building stays on the books.

On the tax side, the IRS explains that gain on the disposition of depreciable property may have to be treated in whole or part as ordinary income. How much applies to your building is a calculation for your CPA, and it directly affects how much cash the company keeps.

Ask your CPA for an estimate of after-tax net proceeds at two or three possible prices before you set a target. It often changes the target.

The sequence below shows when each role carries the most weight. Exact timing varies with the property and the buyer.

1. Feasibility. The internal lead and broker define goals and review market rent and likely value. The CPA estimates tax and net proceeds and gives a first view of the accounting. The lead reviews loan documents with the attorney for restrictions on a sale or a new lease.
2. Preparation. The lead and broker assemble financial statements and property records. The environmental consultant updates reports. The attorney reviews title and prepares a lease form or term sheet. The lender is approached for payoff figures and any consent.
3. Marketing and offers. The broker contacts investors under confidentiality agreements, manages questions and site visits, and collects offers. The lead, broker and CPA compare them.
4. Letter of intent. The broker negotiates price and key lease terms with the selected buyer. The attorney reviews the letter before it is signed, particularly any exclusivity and binding provisions.
5. Contracts and due diligence. The attorney leads the purchase agreement and lease. The broker keeps business terms from drifting and manages buyer requests. Consultants respond to the buyer's inspections.
6. Closing. The attorney and title company handle documents and funds. The lender is paid and releases its lien. The CPA records the transaction, and the lead sets up rent payments and lease administration.

Most problems on a deal team are gaps between roles. The broker assumes the attorney is watching a business point in the lease, and the attorney assumes it was settled in the letter of intent. The CPA learns about a repurchase right after it has been promised. A short weekly call and one shared list of open issues prevent most of this.

• ✓Is there one internal decision-maker, and does every advisor know who it is?
• ✓Has the CPA reviewed the proposed structure before the letter of intent is signed?
• ✓Has the lender been asked about payoff, prepayment charges and consents?
• ✓Does the attorney handle commercial leases and property sales regularly?
• ✓Do the broker and attorney agree on who negotiates which lease terms?
• ✓Is there a single list of open issues with an owner and date for each?
• ✓Does each advisor's engagement letter state clearly whom that advisor represents?

TAG fills the broker role on the occupier's side. We work alongside your attorney and CPA from the feasibility stage, and where a company does not yet have advisors experienced in this kind of transaction, we can suggest the questions to ask when choosing them.