Hermes Real Estate Advisory is one of the important focus of the Hermes Finance and Development practice. We are experts at structured finance solutions bringing to bear leverage to structure assets, distressed, restructured or assets refinanced.
Tax-Deferred Sale-Leaseback
Hermes has deep expertise in the structure and placement of tax-deferred sale-leaseback finance. A sale-leaseback monetizes a company’s real estate assets, freeing up capital to invest in its higher-returning core business, or pay a dividend to shareholders. It can also be a lucrative option for buying back corporate stock, paying down debt, or simply reallocating capital into more productive uses.
Tax-Deferred Transactions are structured in compliance with IRC § 1031 and FASB ASC 842, and formulated to optimize value, and obviate necessity of acquiring a replacement property.
Niches that Hermes is presently active in Sale Leasebacks are:
- Medical Office/Hospital’s
- Data Centers
- Warehouses
- Government
- Illiquid or Distressed Real Estate
- High Growth
- Equipment
Hermes is committed to provide sound financial resources and operational expertise to transform undervalued or distressed real estate into growth possibilities or solid operating ventures. We bring significant intellectual property and advisory experience in the Primary real estate markets.
The important tenants to our success in Sale Leasebacks, Distressed, Recapitalized or Refinancing is:
- Network
- Capital Formation,
- Consulting & Execution
- Asset Repositioning
- Investment
- Development
Hermes also works in the secondary market for whole loans, whole loan pools and synthetic securities like Mortgage Backed Securities. We have the expertise to:
- Analyze the underlying security
- Provide research for a present value of distressed loans or portfolios
- Provide market ready investors to purchase the securities.
Typical purchasers of distressed whole loans include:
- Private equity groups, hedge funds
- Real estate developers
- Pension funds
- High-net worth individuals
Sale-Leaseback Case Study
We were hired to restructure debt on a Psych hospital. Things were critical and they were being asked to leave the bank. They had little recourse because of the debt problem of the hospital and the imminent foreclosure by the bank. They hired us to find a solution with the bank but there few due to the situation with the Hospital.
First, we negotiated with the bank to buy some time until we could determine a course of action. We then did an in-depth financial analysis and study of the hospital. We determined that the owners were draining the hospital and that management had lost vision due to the lack of controls. We looked at different options like refinancing, recapitalizing or out-right selling but after providing reviewing several options for a restructure we finally came to an agreement that a Sale-Leaseback was right for them.
The only problem they were not in a position to purchase replacement property and needed a deferral on the taxes. We met with counsel and they determined it would not meet the rules of the IRS to be able to defer the tax. We ended up meeting with three different attorneys who all said the same thing, it could not be done if you wanted to keep the tax deferment. We thought differently than the SLB could be structured but we needed to do research to see if we could construct a sale-leaseback without purchasing a replacement piece of real estate.
We directed our research from case law and was able to make it work. We created a precedent with this type of Sale-Leaseback that allowed our client to sell the hospital and lease it back without having to purchase another property but keeps the tax deferment. The hospital also received a longer-term commitment with the flexibility to exit the lease after 15 years if they had another option for another 16 years. There were many additional benefits that they derived. We exited the bank with all parties happy.
