Turn the equity in your building into working capital.
A sale leaseback sells your property to an investor and leases it back on a long term lease. We underwrite it the way a lender underwrites debt: the rent is the cost of capital, and the lease terms behave like covenants. Then we compare it with every alternative before recommending it.
Owned real estate can be the largest idle asset on the balance sheet.
A building owned free and clear supports the business physically, but not financially.
Equity is trapped in real estate
The property is owned outright or carries a small mortgage, while the business needs capital.
You need more than a mortgage will lend
A cash out refinance stops at the lender's loan to value limit. A sale converts the full value of the equity.
You are funding growth or an acquisition
The capital can fund expansion, a competitor purchase or new equipment without adding bank debt.
Ownership is changing
A partner buyout, succession plan or sale of the business can be easier with the real estate separated out.
A financing decision, not a real estate one.
Economically, a sale leaseback works like long term financing secured by your occupancy of the building.
Value
The property is valued on the strength of the lease and your business, not only the building.
Sale
An investor buys the property and pays its value in cash, less any mortgage payoff.
Lease
You sign a long term lease, commonly 10 to 20 years with renewal options, and keep operating as before.
Rent
Rent, scheduled increases and property obligations become your ongoing cost of capital.
Three ways to use the same building.
| Sale leaseback | Cash out refinance | Keep as is | |
|---|---|---|---|
| Cash raised | Full value less existing debt | A share of value set by the lender, less existing debt | None |
| Ongoing cost | Rent with scheduled increases | Principal and interest | Taxes, insurance and upkeep |
| Ownership | The investor's. You control occupancy through the lease | Yours | Yours |
| Future appreciation | Goes to the investor | Stays with you | Stays with you |
| Terms that bind you | Lease term, renewals, maintenance and use | Loan covenants and maturity | None |
General characteristics only. Terms vary by investor, lender and property. Review tax and accounting effects with your CPA.
What does a sale leaseback really cost?
The starting rent yield looks like an interest rate, but it is not the whole cost. Rent rises each year, and at the end of the lease the property and its appreciation belong to the investor.
This calculator counts both, then compares the cash raised with a cash out refinance.
Illustrative estimate only. Excludes transaction costs and taxes. Compare the all in cost with the rate on a cash out refinance or other financing before deciding.
Built for owner occupants with meaningful equity.
Strong candidates
- Owner occupied commercial or industrial property
- Steady profits that support the rent
- A property essential to operations, where a long lease makes sense
- Meaningful equity in the building
- A clear use for the capital that earns more than its cost
Usually a harder fit
- Plans to relocate within the lease term
- Highly specialized property with few other potential users
- Weak or declining earnings, which raise rent and limit investor interest
- Owners who want to keep future appreciation
- Capital needs a smaller cash out refinance can meet
Most of the work happens before a lender sees the deal.
We handle the preparation that decides your terms, and stay in it through closing.
Analyze
We compare the sale leaseback with a cash out refinance, equipment or receivables financing, and leaving the equity in place.
Qualify
Investors underwrite your business as much as the building, so we prepare the credit story first.
Structure
Rent, increases, term, renewal options and property obligations, negotiated like loan covenants.
Execute
We coordinate the transaction to closing with your real estate counsel and a licensed real estate broker where one is required.
Illustrative scenario. Not a specific client or transaction.
A food distributor owned its $6M warehouse with a $1.5M mortgage and needed capital to buy a competitor. A cash out refinance at 70% of value would have raised about $2.7M.
A sale leaseback at the same value raised about $4.5M after the mortgage payoff, enough to fund the acquisition without new bank debt, in exchange for a 15 year lease with annual increases.
What owners ask us first.
Do I lose control of my building?
You give up ownership, not occupancy. A long term lease with renewal options keeps you in place. The lease terms decide how much control you keep, so they are negotiated as carefully as loan covenants.
How is the rent set?
Investors set rent from the property value and a return that reflects your credit, the building and the lease term. Stronger credit generally means lower rent relative to value.
What happens at the end of the lease?
Most leases include renewal options. Some include a right of first refusal or an option to buy the property back, which should be negotiated up front.
How does a sale leaseback affect my balance sheet?
The mortgage goes away and a lease obligation is recorded under current lease accounting rules. Your CPA should review the effect on your statements and on any loan covenants.
Are there tax consequences?
Yes. A sale can create a taxable gain. Review the tax treatment with your CPA before deciding.
How is Cobalt paid?
Advice is free. We are compensated when a transaction closes, and we disclose how before you commit to anything.
Tell us about your property.
A Managing Partner reviews every inquiry, usually within one business day. No obligation to start the conversation.
- If there is a fit, we will ask about the property, any existing mortgage and recent financial statements.
- Your cost of capital estimate is included with your message.