How to fund acquisition of real estate alongside business acquisition

January 11, 2024

by a searcher in New York, NY, USA

Hello Fellow Searchers -

I am exploring the acquisition of a $2.5m EBITDA business (~$2m FCF). The business owns a couple of real estate assets related to business operations. We had negotiated a purchase price of $7.5m for the business ($5m SBA debt, $1.5m seller note, $1m equity), with the assumption that we were going to lease the properties. However, the seller has shifted to wanting to sell the real estate along with the business.

We are currently exploring a sale leaseback (purchase price of the business may come down if rent increases), but I am curious around our potential options to acquiring and funding the purchase of the real estate ourselves, given controlling the real estate for the long-term could prove beneficial. From our conversations, it seems the value of the real estate is roughly ~$7.5m for an owner/user.

Does anyone have experience in purchasing the real estate alongside the business, and how they decided to fund/structure the purchase? Any insights much appreciated!

Reply by a lender
from Montclair State University in Odenton, MD, USA

You can message me. Is your plan to finance the real estate purchase with another SBA loan? You're right at the SBA maximum. I would discuss your plan to purchase the property with the SBA lender to give them the first right of refusal to finance the property. You can look at a 504 Green loan program to purchase the property, but you need to do the 7a loan first. This would give you another $5 million with the SBA.

A few things when buying commercial property. The bank will want a clean environmental investigation report in addition to other items. You should research and see what the property was used as before. Find out if there was any contamination on the property before and if it's been remedied. If so, make sure the seller has a no further action from the state.

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