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New Lease on Life (and the Balance Sheet) – Why Sale-leaseback Arrangements Make Sense for Many Business Owners

December 7, 2007


It’s not exactly a recent phenomenon, but a transaction known as the sale-leaseback is becoming an increasingly popular option for businesses looking to raise capital.

As the name suggests, the transaction involves sale of a commercial asset and then leasing it back. There are benefits for both sides of a deal, but also myriad factors that must be considered before one decides to go down this route.

At first glance, it looked like a fire sale spawning questions about the future of the company and its presence in Western Mass. Upon further examination, however, it was part of well-thought-out, balance-sheet-altering business strategy designed to free up capital for the new owners of Friendly Ice Cream Corp., enabling them to focus on core operations and essentially get out of the real-estate business — thus ensuring the company’s continued presence in the Pioneer Valley.

‘It’ is a broad series of so-called sale-leaseback arrangements involving Friendly’s properties ranging from the corporate headquarters building in Wilbraham (sale price: $27.5 million) to individual restaurants in Chicopee ($2.2 million), Holyoke ($1.6 million), Springfield ($1.3 million), and other area communities.

In all, more than 160 properties have been sold and then leased back, mirroring a trend nationwide involving restaurant chains, but also businesses across several sectors. The sale-leaseback is hardly a new concept, but it is gaining greater acceptance as a vehicle for raising needed capital or helping companies weather difficult financial times.

“It’s not a new concept at all, but it’s one that more people are looking at, and for good reason,” said Bob Greeley, president of the R.J. Greeley Co., noting that there can be benefits for both parties in these transactions. The seller can raise capital that can be applied for expansion efforts, equipment purchases, new-product launches, and other purposes, while the buyers, ranging from individuals to real-estate investment trusts (REITS), gain solid revenue streams that come with the added security of hard assets behind the investment.

There have been several sale-leaseback transactions in Western Mass. over the past several years, most involving large regional or national concerns such as Friendly’s,…

You may read more at the link below.

by: Jeffrey I. Fialky, Esq.

November 26, 2007

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