How to use
Use this worksheet to compare a sale-leaseback against a cash-out refinance on the same owner-user real estate. Each section walks the proceeds math, post-deal carry, balance-sheet impact, and the decision drivers. Not tax or legal advice, confirm capital-gains, lease accounting, and 280E/state-tax positions with counsel before committing.
Section 1, SLB proceeds math
A sale-leaseback (SLB) sells the real estate at an agreed cap rate and signs a long-term triple-net lease back. SLB proceeds are gross proceeds less basis-driven taxes, sale costs, and any lender payoff on existing debt. The economics depend almost entirely on the negotiated lease coverage and cap rate.
Section 2. Cash-out refi proceeds math
Cash-out refi sizes a new first mortgage against appraised value, with proceeds used to pay off the existing mortgage and return the residual cash to the borrower. Proceeds are debt, no tax event at closing, but the asset stays on balance sheet with a larger mortgage.
- New loan amount = lesser of (LTV cap × appraised value), (NOI / debt-yield floor), and (NOI / (DSCR floor × annual debt service constant)).
- Typical owner-user / NNN refi sizing: 60% to 70% LTV, 1.25x to 1.35x DSCR, 8% to 10% debt yield.
- Net cash to borrower = new loan amount − existing payoff − closing costs (1.0% to 2.0%) − any prepay penalty.
- No capital-gains tax at closing; basis preserved; depreciation continues.
- Post-refi annual debt service = new loan × debt-service constant at quoted rate / amort.
Section 3. Side-by-side comparison framework
Compare both paths on (a) cash today, (b) ongoing carry, (c) balance-sheet treatment, and (d) end-of-term flexibility. The right answer depends on the operating-business cash need, the credit profile, and the asset's expected appreciation.
SLB vs. cash-out refi, owner-user decision matrix
| Driver | Sale-leaseback | Cash-out refi |
|---|---|---|
| Equity open | 100% of asset value | LTV-capped slice (typically 60% to 70%) |
| Tax event at closing | Capital gains realized (depreciation recapture + LTCG) | None, debt proceeds |
| Ongoing carry | Triple-net rent (escalating; tax-deductible) | P&I debt service (interest deductible; principal not) |
| Balance-sheet asset | Removed; ROU asset + lease liability under ASC 842 | Retained at historical basis less depreciation |
| Future appreciation | Lost (REIT keeps it) | Retained by sponsor |
| End-of-term flexibility | Renewal option or vacate; subject to rent re-set | Refinance or sell at then-market value |
| Typical execution | 120 to 180 days; cap-rate driven | 60 to 90 days; lender-driven |
Section 4. Decision drivers and worked example
Pick SLB when the operating company needs maximum equity open, can absorb a long-tenor rent obligation, and is indifferent to or unable to retain the asset's appreciation. Pick refi when the sponsor wants to keep the upside, can live with capped proceeds, and prefers debt-service vs. lease-payment flexibility.
- Worked example: $20M asset, $1.4M NOI (7.0% in-place cap), $5M existing mortgage at 5.0%/25-yr.
- SLB at 7.5% cap → $18.7M gross; net pre-tax ~ $13.4M after sale costs and payoff; capital-gains hit ~ $2.0M (assuming $4M basis); net after-tax ~ $11.4M cash.
- Refi at 65% LTV → $13.0M new loan; net cash ~ $7.7M after payoff and closing.
- SLB opens ~$3.7M more cash but costs the appreciation upside and adds ~$1.4M annual rent obligation (escalating) for 15 to 20 years.
- Decision driver: if the operating business can deploy the marginal $3.7M at a return higher than the lost real-estate appreciation + rent escalator, SLB wins. Otherwise, refi.