Veterinary Clinic Sale Leaseback
Ever wonder how your veterinary clinic could benefit from a sale leaseback? If you have an operating clinic and you also own your real estate, then a sale leaseback could be a great option when you’re ready to raise capital for business growth, to pay down debt, or to sell your real estate due to a business sale.
We help veterinary clinic operators unlock their real estate equity.
What is a Veterinary Clinic Sale Leaseback?
A sale leaseback, also known as a “leaseback”, is a useful and creative way for you to raise capital quickly by unlocking the equity you have built up in your veterinary clinic real estate. You would start by selling your clinic’s real estate to an investor and then immediately lease the real estate back from the new owner at mutually agreed terms. Your business would continue to operate just like before, but you would now be the “lessee” (aka, tenant) in the property, and the buyer would be the “lessor” (aka, landlord).
Here are the top reasons why you might consider a sale leaseback on your veterinary clinic real estate:
- You want to expand your clinic to a new location and you need more capital to purchase/open new location(s)
- You need to restructure your balance sheet and/or pay down debt.
- If your clinic is sold, the new clinic owner might not be interested in purchasing the real estate along with the business and you could sell the real estate quickly through a sale leaseback.
To break it down, the simplest way to think about a veterinary sale leaseback is this: You could sell your vet clinic real estate and immediately lease it back from the new owner. This way, you get access to new capital but also continue to use your clinic just like before.
Advantages of a Sale Leaseback for Veterinary Clinics
If you operate a veterinary clinic that also owns real estate assets, there are many great advantages to pursuing a sale leaseback transaction. There are also some disadvantages too, so it’s important to understand what your business goals are, and these goals will help determine whether a sale leaseback is right for you.
Benefits of a sale leaseback for the lessee/seller
- You could quickly unlock any equity that’s “stored” in your real estate to help grow your clinic faster.
- You decrease your overall operational risk when you no longer own the real estate and that risk now sits with the new owner
- You can improve the health of your business balance sheet by trading your mortgage (liability) for an asset (cash).
Benefits of a sale leaseback for the lessor/buyer
- They get a lease that is guaranteed by the tenant business
- They get a consistent and predictable stream of income for a long period of time
- They get a fair return on their invested capital
As you can see from these benefits, a sale leaseback can be a truly win-win scenario for both you, the clinic owner, and the buyer/investor alike. While there are many details that both parties need to agree on, such as the lease length, monthly payments, etc, the sale leaseback transaction provides many advantages and is a useful tool you should consider if you are looking to raise capital quickly for your veterinary clinic.
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Veterinary Clinic Sale Leaseback Risks
Like all transactions, there is always some risk involved and you should be aware of the common veterinary clinic sale leaseback risks that could affect both the seller and buyer. These risks can usually be assessed and mitigated during the due-diligence phase so that both parties can be prepared to wisely complete their sale leaseback transaction.
Risks of a sale leaseback to the seller/lessee
- You could have a new investor/landlord that’s difficult to work with
- You give up the future appreciation in your real estate
Risks of a sale leaseback for the buyer/lessor
- The business could default on their lease agreement forcing an eviction
- The tenant business is in control of the real estate and could start using it in an unauthorized way.
While there are many considerations for both the seller/lessee and buyer/lessor, these common risks can be mitigated by each party before entering into an agreement. For example, if you are a business that is considering selling your real estate and immediately leasing it back, it would be worth your time to get to know who the investor truly is first and even talk to other tenants of the investor to get a clearer picture of how they will be as your new landlord.
For the buyer/investor, it is important to mitigate these risks by understanding the business who will become the tenant. Investors will want to know the strength of your business in terms of the following:
- Is your business growing or shrinking?
- What is the gross revenue of your business for the past few years?
- What entity will be guaranteeing the lease and what is that entity’s creditworthiness?
Veterinary Clinic Sale Leaseback Examples
While there are many sale leaseback examples, here are a couple that should give you a clearer picture of why might choose to do a sale leaseback with your veterinarian clinic real estate.
Example 1: Vet Clinic Expansion
Laura owns 2 veterinary clinics in Minnesota. She was offered an opportunity to purchase two nearby clinics as the current veterinarian/owner was retiring. Laura researched what it would take to finance the purchase of the two new locations and realized that she would be able to purchase both locations without financing if she simply sold the real estate from her current clinics in a sale leaseback transaction, freeing up the capital she has built up over the years. This allowed her to purchase the new locations without taking on any new debt and actually improved her balance sheet in the process as she removed mortgage debt and increased her assets all at once. She came to an agreement with an investor and sold her clinic’s real estate and immediately signed a 15 year lease to remain and continue to operate her initial locations as before.
Example 2: Vet Clinic Sale
Brandon owned and operating 4 successful veterinary clinics in Dallas Texas for over two decades and was now interested in retiring. He was dedicated to passing on the clinics to a veterinarian who had been working alongside him at the clinics for many years and who was excited to take over the operation. But, Brandon wanted to unlock his equity he had built up in the four clinic locations before he sold the business. He owned three of the properties free and clear and only one still had an active mortgage. He decided that a sale leaseback transaction was the cheapest and quickest way to sell his real estate and allow the clinics to continue to operate for years to come with the new ownership in place. He found an investor who was willing to purchase the real estate for fair market value and immediately after the business sale happened, Brandon sold the real estate and the new veterinarian owner signed a longterm lease that would keep the clinics operating far into the future.
Hopefully, these two examples give you a better picture why you might consider a sale leaseback to unlock your veterinary clinic real estate equity.
Veterinary Clinic Leaseback Agreement
While the sale of your clinic real estate is the first half of the transaction, the leaseback agreement itself is equally important to both the seller/lessee and the buyer/lessor. The primary concerns in the leaseback agreement itself are the lease length, and the amount of the monthly lease payments. You can use a sale leaseback calculator to understand how the sale price and the lease length and payment amounts are related. Typically both parties start their negotiation by using a standard leaseback agreement template that includes the primary elements of duration and monthly payments, but the agreement also should have other important details related to the responsibility of each party.
Here’s a partial list of elements any veterinary clinic leaseback agreement should have:
- Length of lease in months
- Monthly lease payment amount
- Lease renewal options
- Lease payment increases and related timing
- Entity that is guaranteeing the lease
- Consequences in the case of a late lease payment or default on lease
- Management and financial responsibility breakdown of various elements (Insurance, taxes, maintenance, improvements, roof, structure, HVAC etc.)
Next Steps
While there are plenty of commercial real estate brokers who would offer to help when you are ready to think through a sale leaseback for your Veterinary clinic real estate, there are actually few companies that specialize in the sale leaseback process. These select few companies, like SaleLeaseback.co work directly with vet clinic operators to buy real estate directly from you, the owner, with zero fees. We help you think through your options and potential pitfalls associated with a sale leaseback transaction for your particular situation. So, if you are considering a sale leaseback to raise funds for your clinic, start by letting us give you a free offer for your real estate.