First, our clients  have sold and leased back their company-owned real estate to raise cash to  (among other reasons):

  • Provide working capital
  • Pay off more expensive junior debt
  • Buy or build a new building
  • Buy another company
  • Retire a parent to Florida
  • Buy out a partner
  • Pay unfunded pension liabilities

Second, a critical reason to do a sale-leaseback is to maximize  the value of the entire company as part of a long term exit strategy. Why?

Because two is greater than one: total net proceeds from 2 transactions   sale of the real estate, then the sale of company (or vice versa), separately – exceeds the net proceeds when the real estate is sold as part of the company.

Commercial real estate sells at twice the multiples of cash flow than do companies. Middle market companies typically trade at 4 to 6 times EBITDA whereas their real estate sells for its net operating income (NOI) capitalized at 7% to 10% or a multiple of 14 to 10 times cash flow.

More investors can afford the company without the real estate: by reducing the sale price of the company, there will be a larger population of buyers who can afford the smaller offering price, which will generally increase the competition and, thereby, increase the price ultimately paid to acquire the company.