Many companies have a large part of their value tied up in the buildings they operate from. Selling the property to an investor and leasing it back releases capital without changing anything in the operation. When it makes sense, and what it costs.
A factory, a warehouse, a hotel, a chain of shops: many mid-sized companies own the properties they operate from. For years this was seen as a sign of strength. But it also means a significant part of the company’s capital is locked up in bricks and mortar instead of funding the growth of the business. A sale and leaseback is a way to release that capital.
How it works
The company sells the property to an investor and, in the same transaction, signs a long-term lease with them. The operation carries on exactly as before: same building, same staff, same customers. What changes is that the company receives the value of the property in cash and starts paying rent.
What the released capital is used for
- Funding growth: new sites, equipment, acquisitions.
- Reducing more expensive or more restrictive bank debt.
- Preparing the company for a sale, separating the operating business from the property.
- Allowing shareholders to realise value without selling the company.
Why it appeals to investors
For a property investor, a sale and leaseback with a solid company offers something valuable: stable income from a tenant committed for many years, in a building the tenant knows and needs. The stronger the company and the more essential the property to its business, the better the terms it can negotiate.
What is negotiated
- Sale price and rent. They are directly linked: a higher price generally means a higher rent. The right balance depends on the company’s ability to pay the rent in bad years.
- Lease term. Long terms give the company security and the investor value.
- Rent reviews, usually indexed to inflation, with or without caps and floors.
- Who pays for what: maintenance, structural works, insurance, property taxes.
- Buy-back or extension options at the end of the term.
- Rights on a sale of the company: the lease should allow a future buyer to keep it.
The risks
- Rent is a fixed cost the company must pay even in bad years. Rent set too high can weaken it.
- The company gives up future property appreciation. If the property rises sharply in value, the gain goes to the investor.
- Reduced flexibility to alter or extend the building without the landlord’s consent.
- Accounting and tax effects that should be analysed before the transaction.
When it makes sense
A sale and leaseback works well when the company has a more productive use for the capital than the implicit return on owning the property; when the property is essential and of good quality, which secures good terms; and when the company has stable results that cover the rent comfortably. In hospitality, it is a common structure for separating ownership from operation.
GestInvest structures sale and leaseback transactions and other capital solutions, with access to property investors across Europe and beyond. Read more about capital and financing and our private deals.
Frequently asked questions
What kinds of property suit a sale and leaseback?
Good-quality operational properties essential to the business: factories, logistics warehouses, hotels, well-located shops, headquarters.
What is a typical lease term?
Long — often ten to twenty years — because that is what gives the investor value and the company security.
Can I buy the property back later?
A buy-back option can be negotiated, usually at market value or at a price fixed in the contract.
