In a sale-leaseback, a business that owns its building sells the property to an investor and immediately leases it back. The business keeps operating in the same location as a tenant while turning the equity in its real estate into cash. Sale-leasebacks are common with medical practices, manufacturers, auto dealers, restaurants, and other owner-occupied businesses in Sarasota.
How a Sale-Leaseback Works
The owner sets the terms. The business decides on the rent, lease length, and renewal options it can support.
The property is marketed to investors who buy net lease real estate.
The sale and the lease are signed together. The lease starts the day the sale closes.
The business keeps operating and pays rent to the new owner, usually under a NNN lease.
Why Business Owners Do It
Unlock equity: turn real estate value into cash for growth, debt payoff, or retirement
Stay in place: keep the location, customers, and staff without moving
Shift capital: put money into the business, where returns may be higher than in real estate
Simplify succession: separate the business from the building ahead of a sale or transfer
Reduce debt: pay off a mortgage and strengthen the balance sheet
Why Investors Like Them
Investors get a long-term lease with a tenant that has already shown commitment to the location. Because the lease is usually NNN, the investor’s income is predictable. A strong tenant and a long lease often earn a lower cap rate, which means a higher price for the seller.
A Worked Example
Here is an illustrative example. A Sarasota business owns its building outright and agrees to lease it back for 15 years.
Item | Amount |
|---|---|
Starting yearly rent (NNN) | $180,000 |
Cap rate investors pay | 7.0% |
Sale price | $2,571,000 |
Estimated closing costs (3%) | −$77,000 |
Cash to the business before taxes | $2,494,000 |
How Rent Sets the Price
The rent the business agrees to pay drives the sale price. A higher rent produces a higher price but raises the business’s occupancy cost. This illustrative chart shows the price at a 7% cap rate for three rent levels.
Yearly rent | Sale price at 7% | Chart |
|---|---|---|
$150,000 | $2.14 million | ███████████ |
$180,000 | $2.57 million | █████████████ |
$210,000 | $3.00 million | ███████████████ |
Things to Weigh Before You Sell
Taxes: the sale may trigger capital gains and depreciation recapture, so talk with a tax advisor first. A 1031 exchange may help if you plan to buy other property.
Future appreciation: the investor, not your business, keeps future gains in the property’s value
Lease terms: you will be bound by the rent, increases, and maintenance duties in the lease
Flexibility: build in renewal options and the right to sublease or assign if your business changes
Rent level: set rent your business can comfortably afford for the full term
Sale-Leaseback vs Refinancing
Feature | Sale-leaseback | Refinance |
|---|---|---|
Cash available | Up to full market value | Usually 65% to 75% of value |
Ownership | Sold to an investor | Kept by the business |
Ongoing payment | Rent | Loan payment |
Future appreciation | Goes to the investor | Stays with the business |
Balance sheet | Can remove real estate debt | Adds or keeps debt |
Frequently Asked Questions
How long is a typical sale-leaseback lease?
Most run 10 to 20 years, with renewal options. Investors pay the most for longer leases with strong tenants and regular rent increases.
Can I buy the building back later?
Sometimes. A lease can include a right of first refusal or a purchase option, although these terms can lower the price investors will pay.
Is a sale-leaseback right for a small business?
It can be, as long as the business has steady financials and the owner is ready to be a tenant. Start with a broker opinion of value to see what the property and lease could bring.
If you own your building and want to unlock its equity, explore a sale-leaseback or call Eric Barnes at 941-207-9707.
For property owners
Explore a sale-leaseback
About the author: Eric Barnes
Eric Barnes | Commercial Advisor | 941-207-9707
Michael Saunders & Company | MSC Commercial | Sarasota, Florida
Florida License SL3600406 | GRI | RSPS
More about Eric Barnes