Put the property to work in your next business decision
A business can own valuable facilities and still face a difficult choice about where to find capital for an acquisition, expansion or ownership transition. A sale-leaseback offers one route: sell the real estate, receive the net proceeds and continue using the facilities under a long-term lease negotiated with the sale.
The useful question is what the business can accomplish with those proceeds, and whether that benefit justifies the rent and the loss of property ownership. The affiliate reviews the company and the real estate as a prospective buyer. That review is not representation of the seller. The facility’s role in operations, the durability of the business’s cash flow and the lease obligations all matter to the transaction.
Same facility. A different ownership structure.
The sale and lease are negotiated together. Net proceeds reflect debt payoff, transaction costs and applicable taxes.
For businesses that need the facility and have another use for the capital
We consider operating companies with approximately $15 million or more in owned real estate, held in a single property or across a portfolio. Manufacturing plants, warehouses, distribution centers, food-processing facilities and industrial service properties are central to the program. The property needs to support an operating business that can carry the proposed rent.
Fund an acquisition
Evaluate the owned real estate as part of the acquisition financing plan. Coordinate the property purchase, business transaction and lease so their conditions and closing dates work together.
Expand the business
Compare releasing capital from existing facilities with borrowing against them. Include the cost of future improvements and the space the business expects to need.
Reorganize obligations
Consider a sale-leaseback alongside debt repayment, a recapitalization or an ownership transition. Existing liens, payoff costs and taxes affect the cash available after closing.
Sale-leaseback or mortgage? Compare what you keep and what you owe.
A higher sale price or a larger loan does not settle the decision. Compare the net cash available, the ongoing payments, the property rights you retain and the flexibility you need over the expected life of the business plan.
| Decision | Mortgage financing | Sale-leaseback |
|---|---|---|
| Ownership | You retain the real estate, subject to the lender’s lien. | The buyer owns the real estate; your business occupies it as tenant. |
| Cash available | Loan proceeds less existing debt, costs and required reserves. | Sale proceeds less existing debt, transaction costs and applicable taxes. |
| Ongoing obligation | Debt service, covenants and repayment at maturity. | Rent, agreed increases and the responsibilities in the lease. |
| Future flexibility | Loan terms affect sale, refinancing and additional borrowing. | Lease terms affect renewal, assignment, expansion and changes in use. |
| Long-term value | You retain the property’s future gains and losses in value. | The buyer takes the ownership position; you retain the negotiated lease rights. |
Use the same operating assumptions for both cases. Include capital expenditures and downside scenarios, rather than comparing only first-year rent with first-year interest. Your tax and accounting advisers should evaluate the consequences for your ownership structure.
The lease deserves as much attention as the sale price
The lease becomes an operating commitment. Initial rent, increases, term and renewal options need to fit the company’s cash flow and expected use of the facility. Responsibility for taxes, insurance, maintenance and major replacements should be clear before the parties agree on economics.
Think beyond today’s footprint. If the business may add a production line, expand the building, sell a division or change ownership, discuss those possibilities during structuring. Expansion rights, assignment provisions, guarantees and landlord approvals can matter long after the proceeds have been spent.
From property information to a purchase and lease
- Discuss the business and the propertiesStart with the facilities, their role in operations, your intended use of proceeds and the timing. We can discuss confidentiality arrangements before sensitive materials are exchanged.
- Compile the materialsProperty details, company financials, existing debt and anticipated capital spending give us a basis to evaluate the purchase and lease together.
- Work through price and lease termsDiscuss a proposed purchase price, rent, term, increases, renewals and responsibilities. Preliminary terms remain subject to review and definitive agreements.
- Complete diligenceCoordinate property and business review, title, survey, environmental work and capital partner review. Resolve the findings that affect price, lease terms or closing conditions.
- Close the purchase and begin the leaseThe purchase and lease documents establish the agreed terms. The business continues using the property under the lease following closing.
A principal-side real estate purchase
Real Estate Capital Partnerships operates through a separate affiliate of Masterson Capital Markets working with institutional capital partners. The affiliate evaluates the real estate as a prospective buyer and landlord. This is separate from MCM’s debt advisory and sponsor consulting engagements; the affiliate does not represent the property seller in this transaction.
Frequently asked questions
What is a sale-leaseback?
Your business sells its real estate and leases it back under a long-term lease. The business receives the sale proceeds and continues operating at the property as the tenant.
Who buys the property?
An affiliate of Masterson Capital Markets acts as a principal together with institutional capital partners. In this transaction the affiliate is a buyer, not the property owner’s advisor, broker or agent.
How are price and rent determined?
We evaluate the property, its importance to the business, the company’s financial performance and the proposed lease. Price and rent are negotiated together, with appraisal, underwriting and capital partner approval part of the process.
How does a sale-leaseback compare with a mortgage?
A mortgage allows you to retain ownership while borrowing against the property. A sale-leaseback transfers ownership and creates a lease obligation. Compare net proceeds, rent increases, debt service, taxes and your long-term need for the facility.
Can we include more than one property?
Yes. We consider individual facilities and portfolios. Each property and the combined lease obligations need to fit the business and transaction.
Tell us about your properties
Share the company, facilities and what you want the transaction to accomplish. Start with the information you have; we can identify the additional materials needed for a review.