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If you own the real estate for your early education company, all of the following improvements are possible with a Sale and Leaseback transaction. Every case is different, but all of these improvements are reasonable and feasible. This same strategy has been used very successfully by sophisticated, publicly traded companies from multiple industries.
- Increase your profits
- Increase the market value of your business
- Lower your occupancy cost
- Eliminate or reduce your debt
- Increase your cash holdings
- Decrease your taxes
- Increase the number of buyers qualified to buy your company
- Continue to use the same facility(ies)
- Expand your early education company faster
- Move toward retirement without doing it all in one step
The one change is……Sell your real estate and keep your business. It’s done all the time. You can sell your real estate and simultaneously secure a lease under your terms and accomplish everything on the list above. Here is a typical example to show the difference with and without real estate.
Let’s say you’re going to invest $2,000,000 in a childcare center or school. You spend $600,000 for a business component that produces a return (EBITDA) of $200,000 a year and $1,400,000 for the real estate. Your annual return on investment for the business component is 33% ($200,000 / $600,000). In the last 15 years, the average return on unleveraged commercial real estate is 8.8% per the National Council of Real Estate Investment Fiduciaries (NCREIF).
So on a pre-tax basis, $2,000,000 invested at 33% yields $660,000 a year to you. Two Million dollars invested at 8.8% yields $176,000 a year to you. Owning the center / school described here (business and real estate) yields $323,200 a year to you. It’s the same money invested in the same industry…with remarkably different returns. This isn’t a new idea. According to SLB Capital Advisors, the sale leaseback transaction count for 2022 was 11% greater than prior highs reached in 2019 and 2021. Total dollar volume of $31.4 billion also set a record, besting the 2019 volume of $27.6 billion. Many of the largest and most successful early education companies in the country utilize this practice to better their companies……So can you.
We were amazed that it happened in a shorter time than expected. Not only did you sell it for us, but also negotiated an exceptional price. You performed above and beyond our expectations.
Ms. Kimberly G. Pinckney
Former President MAAK, Inc.
Kathleen, GA
As always, please contact us if you have any questions.