Manufacturing Business Real Estate

by a searcher from Harvard University - Harvard Business School

11 months ago

I would love opinions concerning the option to buy real estate during the acquisition of a manufacturing company.  How would you value a manufacturing business that owns the real estate; would you back out a market-based rent from Adj EBITDA?

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13 comments

professional from University of Dayton - School of Business Administration

You should consider a sale leaseback for acquisition financing. Sale leaseback would allow you to pull out the capital from the real estate and add it to your capital stack. A lot of times there is spread between the sale leaseback and seller expectations so it could be quite beneficial to your process. I developed courses on this strategy and can underwrite these deals as well!

3 months ago | like reply | 0 likes

professional from University of New Haven - College of Business

I agree with David's assessment but determine market based terms and conditions for the lease - triple net for example. Based on the FMV rent and terms - remove any expenses that are not in conformity with market based terms. also remove the depreciation from cash flows that are associated with the RE. Leasehold improvements are a little more tricky but for the most part leave them in.

The tricky part becomes where substantial improvements - additions for example are part of leasehold improvements. Agaain need to look at normal transacations - would an independent owner make the improvements for the tenant and increase the rent? Judgment is necessary.

The final step rent expense will reduce cash flows.

11 months ago | like reply | 0 likes

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