Real Estate…as Acquisition Financing?
An M&A Case Study: How one operator leveraged real estate it didn’t own to finance a $26.0 million portfolio of convenience and gas locations in Los Angeles, California
The chance for a small but savvy operator to acquire six high performing Mobil sites in Los Angeles, California.
The acquisition opportunity was only available as a package, containing both the enterprise and the real estate, which resulted in a larger financial commitment than the operator was prepared to make.
Upon reaching an agreeable purchase price and terms with the seller, the operator retained Matt Lipson, Chris Lomuto, and Milo Spector of Stan Johnson Company to find a sale-leaseback partner to acquire the fee interest in the six C&G sites, leasing them back to the operator via a pre-negotiated lease commencing at the close of escrow.
Using historical financials provided by the seller, Lomuto, Lipson, and Spector produced EBITDAR forecasts and leveraged them into proforma lease terms. The lease terms, along with pricing guidance, were then used to source the real estate partner and negotiate the sale-leaseback in a way that was both profitable and sustainable for the buyer, seller, landlord, and tenant.
Twists and Turns
Once the leaseback buyer was identified and engaged, myriad challenges and complexities surfaced arising from the unique and individual circumstances of the various parties to the deal.
Acting as the hub at the center of multiple selling entities, buyers, lenders, escrows, and title companies, Lomuto, Lipson, and Spector carefully coordinated three individual transactions in two separate escrows, overcoming near-constant challenges with the franchisor, environmental agreements, and first refusal rights. They also successfully orchestrated two arm’s length escrows, the satisfaction of two existing bank loans, 12 title insurance policies, and $10.0 million of bridge financing structured as a temporary carryback deed of trust placed on top of the existing financing and recorded during the first of the two escrows.
Through the two carefully coordinated escrows, the operator first acquired the portfolio, along with all rights and business property, using the carryback financing and a small amount of cash. In a second escrow, the operator then immediately conveyed the real estate to the leaseback buyer, in exchange for the payoff of the various financing instruments and a 20 year triple net master lease with options, in effect selling in advance real estate they didn’t yet own, and thereby securing the lion’s share of the funds required to take over the six-unit portfolio of highly profitable businesses.
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About Stan Johnson Company:
Stan Johnson Company is one of the nation’s leading commercial real estate brokerage and advisory firms that focuses exclusively on net lease transactions involving retail, office, industrial, healthcare and sale-leaseback properties. The firm provides acquisition, disposition, capital markets and advisory services for institutions, developers, investment funds and private investors across the United States. Now in its fourth decade of serving as a trusted advisor to its valued clients, Stan Johnson Company has completed more than $30 billion in transactions nationwide and is regarded as the Net Lease Authority®. To learn more about Stan Johnson Company, please visit the recently enhanced website at www.stanjohnsonco.com.