The simple answer is NO. Companies should invest capital to achieve the highest returns, which likely is through investing in their business, not real estate. This concept is somewhat counterintuitive, since it is widely believed that renting is just throwing money away, while owning builds equity in the real estate. Many business leaders also desire the perceived and real control ownership provides. For individuals, real estate ownership can create significant value, but for most companies, a dollar investing in equipment, talent and other revenue generating assets has a much higher return that a dollar invested in the real estate. Companies can maintain operational control of the real estate through a lease that nearly mimics their control as an owner.
The buy vs. lease decision requires thorough analysis, considering both financial and operational factors. Real estate transactions can have significant GAAP and tax implications and need to be carefully structured to support the financial objectives of the business. Additionally, operational considerations must be weighed when selling assets and structuring leases to secure required controls. The broader state of the real estate market is also a factor and significantly influences the value of real estate assets.
The current market, although not as robust as 2006 and 2007, remains strong for quality companies to perform a sale leaseback transaction. National cap rates (the return on real estate) are near historic lows across all real estate types because the risk premium for real estate has decreased over the past few years and anticipated growth has been high. Lower cap rates translate into higher values for sellers of real estate. A company can often generate capital from a real estate sale at a lower cost than borrowing capital for an acquisition or other strategic use.
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