Retailer Bed Bath & Beyond recently made headlines when its stock shares experienced a boost following a strategic $250 million real estate transaction. Like Sears and Macy’s before it, the struggling retailer decided to free up some liquidity in a profitable sale-leaseback deal.
New CEO Mark Tritton is wasting no time in his new role at Bed Bath & Beyond. In an interview with CNBC, he said this is just “the first step toward unlocking valuable capital.”
Is selling commercial real estate and leasing it back a good option for a struggling brick-and-mortar business?
Selling and leasing back property can be extremely beneficial to both the seller and the buyer, but business and tax considerations apply. Anyone contemplating a transaction of this kind should not only research the implications in depth but also consult a real estate expert and a legal advisor.
What are the benefits for the seller?
- Converts equity into cash liquidity
- Alternative funding
- Better financing
- Improved credit standing
- Potential debt reduction
- Deterrent to corporate takeover
- Avoids usury restrictions
What are the drawbacks?
- Loss of property value
- Not as much flexibility
- High rent payment
- Risk of buyer bankruptcy
Further tax considerations, including deductions for rental payments, also apply.
While selling your property may seem drastic, it can be a shrewd business move that could change your company’s trajectory and public narrative. Bed Bath & Beyond is just one business to take this tactic, and it immediately initiated a positive reaction from shareholders.