For many owner-operators, the real estate under their business is both their biggest asset and their most underused source of capital. A well-structured sale-leaseback can turn that trapped equity into growth capital, debt repayment, or liquidity for shareholders: without interrupting day-to-day operations.
1. Understanding the Core Mechanic
A sale-leaseback simply separates two value streams: the operating company’s earnings and the property’s rent. The business sells the building to an investor and signs a long-term lease to stay put. The investor gains steady, inflation-protected income; the seller frees up cash while keeping full control of operations. When done right, the spread between business return on capital and real-estate yield often releases 15–25 percent more value than a combined sale.
2. Timing and Valuation Arbitrage
Most private businesses sell at lower multiples than the property could achieve on its own. By selling the real estate separately, either ahead of or alongside a company sale, the owner captures full market value for both. Timing matters: completing the leaseback before marketing the business gives buyers a cleaner picture of recurring rent and reduces closing friction.
3. Structuring for Flexibility and Control
The best leases balance security for the investor with flexibility for the operator. Ten-year base terms with renewals, CPI or fixed rent escalations, and clear maintenance responsibilities are standard. Avoid overshooting on rent or giving away assignment rights that could restrict future refinancing or limit a strategic exit.
4. What Private Buyers Look For
Private capital, family offices, funds, and entrepreneurial investors, care about one thing above all: stickiness. They pay premiums for tenants who are truly anchored to their locations. The strongest properties show:
- Access to skilled local labor
- Strong traffic visibility and customer draw
- Zoning or permitting barriers that make relocation costly
- Significant tenant improvements or build-out investment
- Strategic proximity to suppliers, logistics routes, or regulated service zones
These factors translate into lower vacancy risk and stronger yield stability: exactly what long-term private investors want. Framing your facility within that context helps command tighter cap rates and faster closes.
5. Integrating the Leaseback Into an Exit Strategy
Whether completed pre-sale to strengthen the balance sheet or alongside a company transaction, a sale-leaseback can streamline negotiations. The buyer of the business acquires a clean, capital-light operation; the seller captures real-estate value at market terms instead of at a blended enterprise discount.
Takeaway
In the LMM world, professional presentation and clean structure go a long way. A properly executed sale-leaseback isn’t just a financing tool, it’s a strategic move that releases trapped capital, signals discipline to buyers, and increases overall exit proceeds.
