2022 unfolded against a backdrop of significant macroeconomic headwinds, including a sharp rise in interest rates, declining M&A activity, volatile public equity markets, geopolitical tensions, and a highly inflationary environment. Even so, sale leasebacks became relatively more attractive on a cost of capital basis, as high yield bonds and bank debt each rose more than 400 basis points while cap rates increased a more modest 100 to 150 basis points. Heading into 2023, this widening cost of capital gap, combined with restrained middle-market valuations sustaining a healthy arbitrage between business and real estate multiples, was driving increased interest in sale leasebacks as a deleveraging and financing tool.
