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CRIC Net Lease Solution
The
Scenario:
Company A identifies an office building for sale that it wants to occupy for its
business. It does not want to allocate the necessary funds to purchase the building
as it has more productive operational uses for its money and has no interest being
in the real estate business. The company wishes to enter into a net lease transaction.
The
Property:
- A 100,000 square foot office building, constructed in 1993.
- Fair market value: $20 million.
The
CRIC Capital Solution:
- CRIC Capital purchases the property identified by the company at fair market
value: $20 million.
- CRIC Capital net leases the property to the company for a basic term of
20 years, plus one 10-year and four 5-year optional renewal periods. The company
has the right to use the property for up to fifty years.
- The company has complete control over the use of the property and is responsible
for all operating costs, including real estate taxes, utilities, maintenance,
and repairs.
- The rents can be fixed, stepped or periodically reset in a number of ways.
The
Benefits:
The company substantially enhances its financial position and realizes the
following benefits:
- With no additional debt on the company’s balance sheet, the book value
of the company’s assets is effectively understated — enhancing
the company’s Return on Assets (ROA).
- The rent is fully deductible over the lease term, making the company’s
after-tax cost less than the cost of alternative forms of asset-based financing.
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