In the lower-middle-market (LMM), most deals don’t fail because of pricing. They fall apart because the real estate side wasn’t aligned with the transaction strategy. Whether you’re selling a business, raising capital, or restructuring debt, unprepared or poorly documented property assets can derail momentum faster than almost anything else.
1. Mixing Business and Property Without a Plan
The biggest mistake owners make is treating the property and the operating company as one indistinguishable asset. When the same entity owns and occupies the building without a formal lease, buyers can’t clearly model rent, expenses, or occupancy risk. That uncertainty leads to valuation discounts or conditional offers. A clean, arm’s-length lease between the OpCo and PropCo solves most of this instantly.
2. Underestimating How Buyers Underwrite Risk
Private buyers and family offices aren’t only purchasing EBITDA: they’re buying predictability. Missing permits, outdated environmental reports, or unclear title histories all raise perceived risk. Each unresolved issue becomes a “deal chip” buyers use to push price or delay close. Diligence readiness signals professionalism and often shortens the closing process by weeks.
3. Mispricing Rent and Inflating Value
Sellers sometimes overstate what the rent should be when separating property value from business value. The problem is that investors look at coverage ratios and market yield, not sentiment. Setting rent above market may look good on paper but backfires once buyers or lenders run the math. Always benchmark rent against local comparables and demonstrate sustainable coverage from actual cash flow.
4. Ignoring Tax and Entity Implications
Poor structuring around ownership can trigger avoidable tax events, land-transfer tax, double taxation on gains, or HST exposure. Clarifying entity ownership and coordinating with your accountant early prevents surprises later. Buyers appreciate sellers who have already mapped out these mechanics; it gives them confidence in your numbers and execution.
5. Not Aligning Advisors Early Enough
Deals move faster when legal, tax, and real-estate advisors are aligned from day one. Too often, the property conversation starts only after an LOI is signed, forcing rushed appraisals and reactive negotiations. Early alignment keeps your position strong and ensures the real estate supports: rather than complicates, your broader transaction goals.
Takeaway
In LMM transactions, real estate is rarely the headline, but it’s often the bottleneck. The owners who treat property as a strategic component of the deal, not an afterthought, avoid last-minute re-trades and close on schedule. Getting this piece right is one of the simplest ways to protect value when it matters most.
