Sale-leaseback transactions for social institutions
What is the starting point?
In recent years, it has become increasingly apparent that institutions in the social and healthcare sector are facing financial challenges. Rising personnel costs, a shortage of skilled workers, increasing pressure on government funding, especially limits on care pricing, are placing an ever-greater strain on operations. Additionally, rising energy costs and operating costs, as well as the fact that institutions often have older properties in need of major renovation, lead to a considerable financial burden.
It is often challenging for social institutions to invest in their own properties, as their equity is limited and financing has become more expensive. A sale-leaseback transaction can therefore be an attractive option. In such a transaction, the institution sells its property to an investor and enters into a long-term lease agreement for the use of the space. This allows the social institution to invest its financial resources in securing the long-term operations and training the employees, rather than in renovations and the ongoing maintenance of its properties.
What are the advantages of a sale-leaseback transaction?
Executing a sale-leaseback transaction offers the social institution the following advantages:
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Focus on core business: The investor has the experience and expertise with real estate developments to effectively manage the construction process. The institution can therefore concentrate on its core competencies in the social and healthcare sector.
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Release of capital: The proceeds from the sale can be used for other purposes (e.g., modernization of the furnishing and equipment, digitization, staff training and recruitment).
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Predictable rental costs: A long-term lease results in clearly forecastable annual costs.
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Restricted equity: The available equity of a social institution is often limited and there is little flexibility when it comes to financing.
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Real estate expertise: The investor has the necessary experience in the real estate sector to effectively control the planning and construction costs.
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Future operating costs: The investor has the expert knowledge to take the future operating costs of the building into consideration when planning a renovation or a new building.
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Reputation: If the social institution takes on the construction project itself and the budgeted costs are exceeded, negative publicity can be the result.
What factors influence the success?
The following factors have a significant influence on a sale and leaseback transaction:
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Analysis: A thorough analysis of the property and its operations is a basic prerequisite.
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Review of options for action: Identifying the various options for action provides a sound basis for decision-making by the social institution. The advantages and disadvantages of the "ownership" and "sale and leaseback" options are critically compared.
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Investor profile: The ideal investor and partner is defined in order to enable a targeted search.
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Soft sounding: Early "soft sounding" with potential investors tests the market potential of a sale-leaseback transaction.
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Investor search: Selecting a suitable investor in the spirit of a true partnership is essential. The investor's long-term goals must be aligned with those of the social institution.
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Lease agreement: Drafting a lease agreement that is balanced for both sides forms the basis for a successful cooperation. The investor is usually responsible for the core and shell, insurance and property taxes. The remaining responsibilities are clearly defined in an interface document (appendix to the lease agreement).
What sets AREA apart?
You benefit from the following advantages:
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We are independent of other market players and are passionate and conscientious in promoting the specific interests of our customers.
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A long-standing track record in executing real estate transactions for institutional real estate owners (social institutions, pension funds, investment foundations)
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Comprehensive specialist knowledge of sale-leaseback transactions
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Highly practical approach thanks to many years of front-line experience in property management and facility management
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Core competence in the field of construction projects, including both renovation projects and the execution of new buildings
Our references
How can we support you with your project?
Your contact person at AREA
