Commercial Real Estate Investment Bank Offers Advice on How Corporations Can Use Real Estate to Access Untapped Capital
Pacific Security Capital offers advice to corporations on how to use commercial real estate investments to their advantage.
Beaverton, OR (PRWEB) June 9, 2005 -- Pacific Security Capital (http://www.pacificsecuritycapital.com), a leading commercial
real estate investment bank providing commercial real estate loans, structured
finance, investment sales and advisory services shares valuable advice on how
corporations can use real estate investments to access untapped
capital.
Most corporations of any size and scale have large investments
in the land and facilities necessary for the successful operation of their
business. Mike Myatt, Executive Managing Director of Pacific Security Capital,
advises that “while making corporate investments into real estate assets may
seem to be a reasonable strategy at first glance, they are rarely investment or
capital driven decisions, but rather operating decisions that in retrospect
usually fail to maximize the leverage and value of their land and facilities
beyond what is typically provided for within traditional ownership and financing
structures.”
When an operating business finds
itself in need of low cost capital their corporate real estate assets should be
evaluated as a source of readily accessible quality capital. While a number of
financially engineered solutions are available to maximize corporate real estate
assets the most commonly used structures center around Sale Leaseback
transactions.
Sale Leaseback transactions are popular solutions for the
following reasons:
Improved Financial Statements: By moving corporate
real estate assets “Off-Balance Sheet” financing solutions are engineered that
create no mortgage or other indebtedness to be carried as debt on your company's
balance sheet. The immediate boost in cash without offsetting debt can improve
the overall financial health of a business. Book income typically increases in
the transaction's early years, with rent payments less than the interest and
depreciation under conventional financing. With our solutions, the book value of
company assets is effectively understated — enhancing your company's Return on
Assets (ROA).
Financial Flexibility: Corporate
and commercial real estate transactions are not bound by formalized loan
industry or REIT requirements, giving lenders flexibility to meet the operating
needs of your business. Rents can be fixed for the full lease term without
inflation adjustments or any percentage rent. Rents can also be stepped to be
lower in the early years or reset periodically to take advantage of improved
credit, interest rates and other conditions. We can also address unexpected
financial and business contingencies.
Operational Control: Most commercial real estate investment banks offer
programs that will allow you to retain complete operational control of the
property for as long as it is required in your business.
Low After-Tax
Cost: The lease payment under a sale leaseback structure is fully deductible
over the lease term, making the after-tax cost to your company less than with
alternative forms of asset-based financing and less than the market rent you
would typically pay. For federal income tax purposes, a company can only
depreciate buildings and other physical improvements, but not land. Most sale
leaseback solutions factor the value of the land into the rent. The rent is
fully deductible, effectively enabling you to depreciate the cost of the land.
Credit Tenant Property Can Provide Similar Financial Benefits To the
Issuance of Corporate Bonds: If a business is deemed to be a credit tenant or
its financial equivalent its corporate real estate assets can be effectively be
used to secure management-free cash flow with exceptional liquidity and high
leveragability performing like corporate bonds while preserving the benefits
that real property offers. Because of the secure character of credit tenant
property investments, properties can be leveraged far more highly than
traditional real estate. Based on the lease guarantee by the tenant,
non-recourse financing may be arranged with a 1.0 debt coverage ratio, allowing
for financing Up to 100% loan to value. Income from an investment grade tenant
over the length of a multi-year lease offers reliable returns comparable to
those of corporate bonds. Credit tenant leases are usually written for terms
ranging from 10 to 25 years. Lengthy terms eliminate concern about tenant
turnover normally associated with real estate ownership.
Near-Zero
Volatility: Many of the corporate real estate programs today offer fixed rent
structures providing full inflation protection. Because the key value
determinant of credit tenant property is the long-term corporate guarantee, this
asset does not experience the cycles affecting other real estate markets.
Long-term, highly leverage financing removes interest rate risk and minimizes
pricing volatility. Circumstances affecting traditional real estate, such as
changes to surrounding property, local politics and market swings have little
impact on credit tenant property values.
Liquidity: The long-term corporate guarantee of rental income and
expense coverage combined with the tenant-based financing enable corporate real
estate assets to be traded with exceptional liquidity not typically associated
with real property. Most lenders will allow businesses to convert existing fixed
real estate assets into cash at fair market value at what may be a premium over
book value. Funding can also be used for new construction including the cost of
the land acquisition. Proper use of corporate real estate as a financing tool
will eliminate the need for a business to tie up capital or credit in land or
buildings.
Mr. Myatt shares a final piece of advice: “A wide variety of
sale leaseback structures are available from lenders who have a practice area
dedicated to corporate real estate finance. When developing your capital
formation strategy make sure you evaluate corporate real estate assets as a
viable vehicle for accomplishing your goals.”
Mike Myatt is Executive
Managing Director of Pacific Security Capital, a leading commercial real estate
investment bank providing commercial real estate loans, structured finance,
investment sales and advisory services. Contact Pacific Security Capital at
1-800-844-6085
To learn more about Pacific Security Capital or
PacificEliteTM please visit www.PacificSecurityCapital.com or call
1-800-844-6085
About Pacific Security Capital
Pacific Security
Capital is a leading commercial real estate investment bank providing commercial
real estate loans, structured finance and advisory services. The combination of
direct lending, investment advisory, intermediary, corporate and professional
services, syndication and acquisition services consistently allow PSC to rank
among the leaders in the industry. PSC is headquartered in Beaverton, Oregon
with other offices in major markets in the United States and the European
Community. More information about the company can be found at www.PacificSecurityCapital.com.
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Source : http://www.prweb.com/releases/2005/6/prweb249485.htm