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Asset Life Cycle and Sale & Leaseback: towards an Asset Smart strategy ?

In the face of the very different strategies adopted by investment funds in the real estate sector, it is necessary to be able to maintain a certain flexibility in the management of one's assets. A "Smart" strategy will allow for the generation of new income, while retaining the possibility of re-internalising the asset over time.

In parallel to the classic Sale & Leaseback operations, new strategies for managing assets during their life cycle are emerging.

As part of their development, operators have a constant need for capital contributions. To raise this capital, several options are available: debt, leasing or the creation of a property company with a shareholder. The latter may have a majority stake and will temporarily take control of the asset. A smart strategy will lead the operator to regain control after generating sufficient revenues.

According to Julien Choppin, Managing Director of Clearwater International, traditional Sale & Leaseback transactions are problematic because the property investor may change: "we have a vocation to rotate assets and it is possible that the partner on the day may not be the same in a few years' time".

However, some assets can be strategic, such as the outdoor hotel industry, where land is becoming scarce and the location is inseparable from the commercial activity. In this case, a loss of control or a sale is to be avoided and it is therefore essential to be able to retain a minority share in the asset, with a view to regaining control. A "smart" strategy thus allows for buy-back options on the asset, in order to reinternalise it at a market value or with a view to a guaranteed return for the real estate investor.

A Sale & Leaseback 2.0 strategy makes it possible to "maximise the cash that I will get out of the operation while having the possibility of keeping control of the asset", conclude Julien Choppin and Thomas Gaucher.

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