Tax Change Leads to Sale-Leaseback Surge

Los Angeles Business Journal (April 12, 2019) In pursuit of a cash infusion, an increasing number of businesses across L.A. County are selling their largest assets — the buildings they occupy — then signing long-term leases to remain in those spaces. These so-called sale-leaseback deals have been prompted by last year’s changes in federal tax law, which allows companies to continue operating as usual while unloading assets that no longer hold tax benefits. In the last four quarters, there were 29 sale-leasebacks in escrow or under contract in L.A. County. That’s up from 15 such deals in the previous four quarters, according to data from CoStar Group Inc. Crystal Lofing, a partner at Allen Matkins Leck Gamble Mallory & Natsis, said some developers will buy properties in sale-leaseback deals with plans to renovate the property. The baked-in tenants allow developers to collect rent while those plans come together. Some buyers “use the leasebacks as more of a timing mechanism to wait out the market,” Lofing said.