With investment pouring into the education sector, academic institutions have never been in a stronger position to capitalise on costly real estate assets to fuel future expansion. Research suggests the public and private education market in MENA is projected to be worth US$96 billion by 2015, with the GCC region claiming US$61 billion of that predicted value. (Al Masah Capital Report)
The sale and leaseback model is enabling educational institutions to unlock capital.
In the most straightforward form, sale and leaseback transactions involve selling a real estate asset to an investor and simultaneously entering into a long-term lease of normally 15 years or longer. This results in an immediate release of capital to the institution and generates profit for the investor – creating a win-win situation.
It is therefore not surprising that the GCC is witnessing a steady rise in sale and leaseback transactions. Yet this method is not without its legal hurdles:
A foreign investor contemplating a sale and leaseback in the region must be mindful of the specific laws and regulations restricting who can own and register freehold and long-term leasehold interests.
GCC and other Islamic investors may need to comply with Shari’ah principles.
Various third party consents may be required as conditions precedent to any deal, for example regulator or superior landlord consent.
Educational providers need to meet strict accounting rules if they seek to classify long-term lease agreements as operating leases rather than finance leases.
Read more about sale and leaseback transactions in the GCC education sector here.