_How to raise capital without losing control of your real estate holdings with Income Strips
Alternative Real Estate Funding Structures - Across the Middle East land holdings are retained by major investors, free zones, master developers and other government-related bodies who may be restricted in selling their freehold interest permanently when looking to release capital. This is due to the fact that these organisations may require certainty surrounding the control and future ownership.
In these cases an income strip can be structured rather than a sale and leaseback.
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What is an “Income Strip”?
It’s a long-term lease, where the tenant has an option to buy back the real estate at the end of a lease for a nominal amount such as AED 10.
Rents are normally fixed and subject to annual increases linked to inflation. The lease would be on a non-assignable triple net basis with the tenant responsible for the repair and running of the real estate.
They can be used in many forms and are traditionally used in forward funding developments in other global commercial real estate markets.
Income Strip
Why consider structuring an “Income Strip”?
- Large demand from Middle East institutional and private investors for fixed income real estate cash flows
- Owner occupier retains ownership
- Access to alternative funding for developments or future business expansion
- Reduces refinancing costs of real estate
- The Income Strip locks in rents at a sustainable and predictable level
- The tenant can continue to occupy the building
- As the obligation diminishes, the investor will benefit from a tenant who is motivated to complete payments to retain the buy-back option
For further information on how Knight Frank can assist you with structuring an income strip, please contact Alex James
Click here to contact Alex James