Sale of Real Estate to Financiers

Instead of real estate financing in the form of a loan, real estate can also be sold to financiers with the creation of a beneficial interest.

In practice the procedure is implemented follows:

  • Leasing companies acquire a property in return for payment of the purchase
  • Transfer to the lessee for use in return for payment of leasing instalments

The following market participants act as property leasing providers:

  • Banks with their special-purpose subsidiaries
  • Leasing companies
  • Funds
  • Special Purpose Vehicle
    • Leasing options
      • Lessor constructs building on behalf of the lessee
      • Lessor acquires an existing building (buy and lease)
      • Lessor buys a building from the lessee and leases it back to him (sale and leaseback)
    • Lease and rent back or lease and sale back
      • The real estate must be shown in the balance sheet, not the mortgages
      • Asset Backed Securities (ABS) are thus referred to as Commercial Real Estate Backed Securities (CREBS) or lease-backed securities
    • Lease and leaseback
      • No real estate transfer
      • Advantages
        • Tax depreciation options
        • Financial profit through tax advantage

Further Information

  • Type of settlement (sale of the property/properties to individual vehicle with leaseback
    • via a company (bank subsidiary and so on)
    • via a fund (e.g. closed-end investment fund)
    • via Special Purpose Vehicle (SPV)
      • Refinancing frequently via Asset Backed Securities (ABS)

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