Evening star. [volume] (Washington, D.C.) 1854-1972, 1947-06-08
BIG Firms Rent
To Save Taxes
Business Houses Sell
Plants and Then
Lease Them
~ Eaorna Tinker
By GEORGE Tucker

NEW YORK.-Many of the coun-
trys largest business organizations
are finding it cheaper to rent tnan
to own, and the "buy-build-seh-
lease" formula for internal flnanc-
ing is coming into fashion IN all
parts of the country.
Under this formula, a company
which bought or built its plants or
stores some time in the past now
sells the property and Immediately
leases it back from the new owner.
The principal advantage is saw
ing on taxes. A secondary benefit Is
the freeing of capital for expansion
or investment.
Today's high real estate values
and high taxes are largely respon-
sible for the current vogue OF an
idea that is not in itself new. Peak
prices are being realized for plants
and. stores sold in the current
market.
Squibb Sells, Leases
Sale of the large E. R. Squibb q
Sons manufacturing property on
Long Island few days ago to
Mutual Life Insurance Co. of New
York high lights the current trend.
Souibb sold the eight-story loft
type manufacturing plant to Mutual
for 81, S75 900 and Immediately Leased
it back for an original term of Is
years, plus the right of renewal for
five successive terms of 10 years
each.
According to Wall Street invest
ing firm, this type of deal originated
in the middle '30s among chain
stores and has since included Sears,
Roebuck, Continental Can Co..
Gimbel Bros, Allied Stores, Inc.
and many others.
A Metropolitan Life Insurance
Co. spokesman explained it this
way:
Suppose you borrow a million
dollars and build factory. You
amortize your loan at so much
year. Your only big tax deductions
are depreciation on the property
plus the interest paid on the loan.
But if you sell-lease you still have
occupancy and the entire amount
of rental is deductible."
Need Working Capital
Neither Mutual, Metropolitan nor
other insurance companies will dis
cuss in detail deals of this kind in
which they are involved.
The vice president of large
manufacturing company which some
time ago sold it's fixed assets and
leased them back said his company
did so because 1t needed working
capital.
There is real question whether
sell-leasing or holding on to your
property is wise" he said. I'VE
kicked it around for several months
and some of our fellows fought
hard against it and are still against
it. But with real estate what it Is
We figured we could earn more re-
turn on our money if We got it out
and put 1t to work doing something
else"
An illustration of sell-lease on a
chain store basis is the package deal
worked out by Allied Stores, Inc,
with Union College of Schenectady,
N. Y.
An investing house spokesman in
discussing the deal said: Allied
had large debt. 1t sold all or most
of its properties to Union, paid the
debt and took the stores back on
lease. From an operating stand
point 1t makes little difference
whether you pay rent or own the
building outright"
Sears, Roebuck Case
Another case with slightly diff
ferent motive was the sale of IA
Sears, Roebuck stores-seven in the
East and seven on the West Coast.
These properties, spokesman
said, were built or acquired when
building materials and construction
were great deal cheaper than they
are today The company sold IA
stores at q profit, took them back
on long-term leases and used the
money to open other stores.
Until recently insurance com.
(see TUCKER, Page C-5.5