Florida Banking February/March 2025

BANCSERV ENDORSED PARTNER: BROOKLINE BRANCH SERVICES

THE EVOLVING LANDSCAPE OF SALE-LEASEBACK (SLB) TRANSACTIONS F L O R I D A B A N K E R S A S S O C I A T I O N

BY WILLIAM B. YEOMANS, SR., OPERATING MANAGER & FOUNDER, BROOKLINE BRANCH SERVICES

I n the dynamic world of commercial real estate, Sale-Leaseback (SLB) transactions have proven to be a resilient and innovative tool for organizations aiming to optimize their balance sheets, unlock capital, and enhance operational flexibility. Amidst global economic fluctuations and evolving regulatory frameworks, this strategy continues to attract a broad range of sectors, with banking and retail businesses finding particular value. As market conditions shift — driven by post-pandemic recovery strategies and increasing international trade policies — the SLB model adapts, addressing new challenges and seizing fresh opportunities, thus remaining more relevant than ever. The Current Landscape In 2024, the SLB market is experiencing significant momentum, driven by rising interest rates and tightening credit conditions. Financial institutions, particularly banks, are increasingly exploring SLB transactions to unlock the value of their real estate assets. This approach not only provides immediate liquidity but also enables these institutions to focus on core operations while maintaining their presence in strategic locations. Key Drivers of SLB Popularity: 1. Access to Capital: With rising costs of traditional financing, SLBs offer a cost effective alternative to secure funds without increasing debt levels. 2. Strategic Real Estate Optimization: Banks can downsize oversized branches or consolidate operations to achieve operational efficiency. 3. Non-Dilutive to Shareholders: The proceeds from SLB transactions provide immediate liquidity without diluting shareholder value. Banks can reinvest these funds into areas like cybersecurity, transaction streamlining, improved customer experience and advertisements. 4. Reinvestment in Growth Initiatives: Proceeds from SLBs allow financial institutions to

invest in technology, member services, and other strategic priorities without affecting their capital ratios. 5. Confidentiality in Transactions: While not always a primary factor, maintaining confidentiality during SLB transactions provides financial institutions with the discretion needed in competitive markets. 1. Emphasis on Flexible Lease Structures: While traditional SLB deals often involved absolute triple-net leases, there is a growing demand for flexible lease terms that allow tenants to share maintenance responsibilities. This shift caters to tenants seeking reduced operational burdens while still benefiting from predictable costs. 2. Integration of Co-Tenancy Strategies: Banks are increasingly leveraging SLBs to reduce oversized branches, bringing in co-tenants to share the space. For example, retail establishments or service providers like coffee shops and clinics are becoming common co-tenants, enhancing foot traffic and community engagement. Brookline has demonstrated through case studies that co-tenancy strategies at oversized branches not only optimize space but also lead to increased deposit growth for banks. 3. Focus on Smaller Markets: As metropolitan markets become saturated, investors are turning to secondary and tertiary markets. These regions often provide better cap rates and opportunities to work with community banks.

Recent Developments

Technological and Environmental Enhancements

Investments in technology, such as AI and blockchain, are not only improving operational efficiencies but are also ensuring more secure and faster transactions.

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