In brief
- 1
Buyers usually pay more than fee-simple value. The lease adds credit, so premiums of 15-25% are typical. A 100,000 SF industrial building worth $8,000,000 with $700,000 of rent prices at $9,655,000 at a 7.25% cap, a 21% premium.
- 2
The equity moves from real estate earning 6-8% into a business that can return 20%+. A sale-leaseback releases 100% of it, the rent becomes fully deductible, and CBRE puts recent annual volume above $30 billion.
- 3
Expect a 10-20 year lease with 2-3% annual escalations. On an absolute NNN lease the tenant also carries the roof and structure, which a standard NNN lease leaves with the landlord. Assignment, sublease, early termination and repurchase rights are the provisions that matter.
- 4
Tenant credit sets the cap rate. Buyer cap rates run 5.0-7.5%: REITs buy investment-grade tenants on 15+ year leases at 5.0-6.0%, while private equity is more flexible at 6.0-7.5%.
- 5
It suits a company that plans to stay. Good candidates have strong credit and a long-term occupancy commitment; uncertain space needs or near-term exit plans make a poor fit.
What a sale-leaseback actually is
A sale-leaseback is when a company sells the building it owns and works out of, then leases it right back from the buyer. The seller becomes the tenant, the buyer becomes the landlord, and cash changes hands. Nothing about the day-to-day operation changes.
How the structure works
Before: Company owns and occupies building; capital tied up in real estate
Transaction: Company sells to investor; signs long-term lease (10-20 years)
After: Company occupies as tenant; investor owns with creditworthy tenant; company has capital for operations
Why companies do them
1. Free up trapped capital
A lot of companies have money locked in real estate earning 6-8% when the core business earns 20%+. That's a bad place to leave capital.
2. Better financial metrics
| Metric | Before | After |
|---|---|---|
| Assets | Higher | Lower |
| Debt (if mortgaged) | Higher | Lower |
| Return on Assets | Lower | Higher |
| Return on Equity | Lower | Higher |
3. The tax treatment
The full rent payment is a deductible expense. Owning, you only get to deduct depreciation.
The economics of the deal
Sale-Leaseback Valuation: Value = Annual Rent / Cap Rate
What Drives Cap Rate:
| Factor | Impact |
|---|---|
| Tenant credit strength | Lower credit = higher cap rate |
| Lease term | Shorter = higher cap rate |
| Real estate quality | Poor location = higher cap rate |
A worked example
Property: 100,000 SF industrial facility
Market Value (fee simple): $8,000,000
Sale-Leaseback Terms:
- Initial rent: $700,000 ($7.00/SF)
- Lease term: 15 years
- Annual increases: 2%
Pricing: $700,000 / 7.25% cap = $9,655,000
Premium to fee simple: $1,655,000 (21%)
Who's on each side
Sellers who fit
- Companies with strong credit
- Stable businesses with long history
- Real estate not core to business value
- Need for growth capital or debt reduction
Buyers
| Buyer Type | Typical Cap Rate | Preference |
|---|---|---|
| REITs | 5.0-6.0% | Investment grade, 15+ years |
| Private Equity | 6.0-7.5% | Flexible |
| Net Lease Funds | 5.5-7.0% | Credit focus |
| 1031 Exchangers | Market | Timing-driven |
Structuring the lease
Rent structure
Absolute NNN: Tenant responsible for everything taxes, insurance, maintenance, roof, structure
Standard NNN: Tenant pays taxes, insurance, CAM; landlord handles roof and structure
The provisions that matter
- Assignment Rights: Can you assign if selling the business?
- Sublease Rights: Flexibility for excess space
- Early Termination: Penalty structure and notice requirements
- Purchase Options: Right to repurchase at predetermined price
Is a sale-leaseback right for you?
Good candidates
- Strong credit profile
- Long-term occupancy commitment
- Capital needs for growth
- Real estate not core to strategy
Poor candidates
- Uncertain future space needs
- Weak financial position
- Near-term exit plans
- Properties with significant issues
Lornell Real Estate facilitates sale-leaseback transactions for Central Massachusetts businesses. Contact us to explore whether this strategy makes sense for your situation.
Sale-Leaseback is a transaction where a company sells its owned real estate and immediately leases it back from the buyer, converting illiquid assets into working capital while maintaining operational control as a tenant.
Sources: CBRE, CoStar Group, Cushman & Wakefield, IRS.
Limitations: Cap rates, pricing, and transaction volume cited reflect market-level averages at the time of publication and may not apply to individual properties. Property values depend on asset-specific factors including condition, tenant credit quality, lease terms, location, and financing structure. Tax rules (including 1031 exchange provisions, capital gains rates, and depreciation schedules) change with legislation. This article does not constitute investment, tax, or legal advice. Consult a qualified CPA, attorney, and commercial real estate broker before making transaction decisions.
Get the Fall 2026 Worcester market report
An owner's guide in thirteen pages, from CoStar's 10 August 2026 data and the city's own records: each sector's vacancy, rents and record prices, why small industrial is full while big boxes are not, what sold and to whom, the submarket spreads, and what it all means if you own a building in Worcester County. Every figure names its source.
