Including a real estate piece into a transaction?

March 25, 2025

by a searcher from Concordia University in Boston, MA, USA

I'm currently considering a specialty manufacturing business that wants to sell its real estate as part of the deal. How would one go about this transaction? I initially thought of valuing the real estate and entity separately and providing a combined value.

Has anyone come across this before?

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Reply by an intermediary
from The University of Texas at Austin in Dallas, TX, USA

^redacted‌ Great question, and excellent insights from everyone here. I've come across this structure a number of times in the lower middle market, and you’re on the right track thinking about the business and real estate separately. They’re fundamentally different asset classes, with different risk profiles, cash flow characteristics, and buyer pools — so they should absolutely be underwritten independently. That said, their relationship is tightly intertwined, especially when the real estate is operationally critical (as it often is in manufacturing). A few additional considerations: As Brad mentioned, if the real estate is currently owned by the operating entity, it’s important to “simulate” a market rent scenario. This allows you to get a true picture of the company’s sustainable EBITDA and gives a clean basis for valuation — particularly if you plan to separate ownership of the RE and OpCo post-close. Do you plan to hold both the OpCo and the real estate long-term? Or spin off one? Some buyers will acquire both and lease the facility back to the business under a triple net lease (NNN), which can create an attractive yield for investors or lenders — and make the business cash flows more transparent. Even if you buy the real estate up front, a sale-leaseback can be a powerful tool to recoup capital, improve returns, and bring in specialized real estate investors. In some cases, structuring a sale-leaseback either at closing or shortly thereafter can inject liquidity into your deal and reduce the equity required, all while locking in occupancy through a long-term lease. It can also attract more favorable lending terms for the operating business. Manufacturing properties can carry legacy environmental liabilities. It’s critical to perform a Phase I (and possibly Phase II) environmental study early in due diligence to avoid surprises. Also, assess deferred maintenance — industrial roofs, HVAC systems, or code compliance issues can materially impact value. If using SBA or similar programs, the loan structure and amortization schedule can really swing your monthly outflows. As Brad and Goran both mentioned, combining the purchase under an SBA 7(a) or 504 can lead to significant cash flow flexibility. Blended amortization is often underappreciated but highly impactful. If you choose to acquire both together, you can still separate the legal ownership — e.g., have the real estate acquired via a different entity or an affiliate LLC, with a lease in place at close. This separation can help if you ever want to sell the business and retain the real estate for rental income, or vice versa. Happy to swap notes if helpful — I've seen both good and bad structures here, and can share lessons learned. - redacted

Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

Great question. Yes, you need to value both separately. If the seller has an old appraisal this is going to be the best way to get a value for the property. If they do not have an appraisal then you may need to find a commercial loan broker to help you value the property.

One of the key issues that can impact the value of the business is how much rent needs to be paid for the property. If the business owns the property directly, then there is unlikely to be rent paid. So you would need to figure out what market rent is and adjust the business cash flow for that when determining the value of the property. If the property is owned by a separate entity, you will need to look at the rent the company is paying for the property and determine if that is market rent. The rent could be higher or lower than market rent. You would then need to adjust the business cash flow for market rent so you are valuing the business properly.

There are also some advantageous financing options you can take care of using SBA 7A financing (if you are using such financing) if you are buying both the business an real estate. If 51% or more of the loan proceeds are being used for the real estate then you can finance both the real estate and business purchase over 25 years. If less than 51% of the loan proceeds are being used for the real estate, then you can do a blended amortization where 10 years is assigned to the portion of the debt associated with the business and 25-years is assigned to the portion of the debt associated with the real estate, and you get a combined amortization between 10 and 17.5 years. Depending on how bit the real estate portion of the debt is, this will typically give you a cash flow savings of 5% to 15% versus doing both loans separately because you get to push out the term on the business debt.

You can also use SBA 504 financing for the real estate is some circumstances, which somewhat allows you to leverage up more loan dollars for the overall acquisition.

If you want to discuss options or need assistance trying to value out the business and property, you can reach me here or directly at redacted Good luck with your offer.

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