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Greased Leaseback: A Comprehensive Guide for the Indian Real Estate Market

What is a Greased Leaseback?

A greased leaseback, also known as a “geared leaseback,” involves the sale of a property by a freehold or leasehold owner with the lease terms structured so that the rent is tied to a fixed percentage of some variable metrics, such as market rent or income. This arrangement allows the original owner to continue occupying or using the property while paying rent based on a predetermined formula.

Key Features of a Greased Leaseback

  • Variable Rent Structure: Rent is typically calculated as a percentage of a variable, such as market rent or the property’s income, rather than a fixed amount.
  • Owner Retention: The original owner remains in possession of the property as a tenant, continuing to use the space while paying rent.
  • Investment and Liquidity: The seller benefits from immediate liquidity and can reinvest the proceeds, while the buyer gains a revenue-generating asset.

Advantages of a Greased Leaseback

  1. Immediate Cash Flow: Sellers receive a lump sum payment from the sale while retaining the right to occupy the property.
  2. Flexible Rent Payments: The rent adjustment based on variable metrics can align more closely with the tenant’s financial performance or market conditions.
  3. Continued Occupancy: The original owner can remain in the property, maintaining business operations without disruption.

Greased Leaseback in the Indian Real Estate Market

Hyderabad:

In Hyderabad, the concept of greased leaseback is gaining traction, particularly in the commercial real estate sector. Key insights include:

  • Business Parks and IT Hubs: Greased leaseback arrangements are popular among companies in HITEC City and Gachibowli, allowing them to sell their office spaces while continuing to operate from the same locations.
  • Market Trends: Hyderabad’s growing real estate market sees leasebacks as a way to optimize asset utilization and liquidity. The rental values in these areas range between ₹50 to ₹90 per square foot, and the geared leaseback terms often reflect these rates.

Mumbai:

  • Prime Commercial Locations: In Mumbai, greased leasebacks are prevalent in high-value areas such as Bandra-Kurla Complex (BKC) and Lower Parel, where businesses can sell their properties while securing favorable lease terms.
  • Pricing Insights: Mumbai’s commercial lease rates can be high, ranging from ₹150 to ₹300 per square foot. Greased leaseback deals here reflect these market conditions, with rent geared to a percentage of market rates or revenue.

Delhi:

  • Business Districts: Delhi sees a rise in greased leaseback agreements in commercial districts like Connaught Place and Gurgaon. This model suits businesses seeking to optimize capital while maintaining occupancy.
  • Rental Values: Lease rates in Delhi vary between ₹80 to ₹150 per square foot. Greased leasebacks here are structured to align with these rental benchmarks.

Bengaluru:

  • IT and Tech Areas: In Bengaluru, greased leasebacks are common among tech firms and startups in areas such as Whitefield and Electronic City.
  • Cost Structure: Rental prices in Bengaluru range from ₹60 to ₹120 per square foot. The terms of greased leasebacks are often adjusted to these values, providing a flexible solution for businesses.

How to Structure a Greased Leaseback Agreement

When considering a greased leaseback, both parties should address the following:

  • Determine the Variable: Define the variable to which the rent will be geared, such as market rent or income.
  • Set the Percentage: Agree on the percentage of the variable that will determine the rent amount.
  • Legal and Financial Review: Ensure thorough legal and financial review to formalize the agreement and address any potential issues.

A greased leaseback offers a strategic solution for businesses in India looking to optimize their real estate assets while retaining occupancy. Understanding the dynamics of greased leasebacks in key cities like Hyderabad, Mumbai, Delhi, and Bengaluru can help investors and businesses make informed decisions and leverage these arrangements effectively.

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