A sale leaseback is exactly what it sounds like. You sell the building your business operates out of, and on the same day you sign a long-term lease to stay in it. You go from owner-occupant to tenant. You get a check. The business keeps running.
This structure has been around forever but we are seeing more of them right now for specific reasons.
Buyers Are Still Active
Buyers of net lease assets are still looking for yield. Industrial sale leaseback product with a creditworthy tenant on a long lease is getting bought. That means sellers are getting reasonable prices, even in a market where cap rates have moved.
The Capital Needs Play
A lot of businesses that own their real estate are sitting on significant equity in a building and running lean on working capital. The business needs cash for equipment, inventory, payroll, or an acquisition. Tapping the real estate is a way to unlock that without taking on more operating debt.
For a business owner who has been building equity in their building for 15 years, this can be a significant amount of capital. We have seen transactions where the proceeds from the leaseback funded an entire business acquisition.
The Succession Angle
If a business owner is thinking about transition and the real estate is tied up in the business, a sale leaseback can help separate the two before any transfer conversation happens. Keeping real estate and the operating business as separate assets gives you more flexibility when it is time to sell, gift, or hand off the company.
When It Does Not Make Sense
It is not the right move for everyone. If you own a building in a market where alternative locations are limited and rents are high, you are trading long-term asset appreciation and rent control for a near-term cash event. That is a real tradeoff and you should go in with eyes open.
But for the right operator in the right situation, it is one of the best tools available right now. If you are curious whether it fits your situation, that is exactly the kind of conversation we are built to have.