Real Estate Lease/Buy

by a searcher from The University of Chicago - Booth School of Business

3 years ago

Hi All,

I'm looking at a specialty construction business in which the real estate is also available for either sale or lease. My preference is to lease (at least at first), but how should I be thinking about evaluating terms? I get the sense based on real estate-only listings in the area that the payment amount the seller is asking for is high for the region/type of facility (but I'm no expert and I know that small variances in location, etc. mean a lot). Then again I'm not sure it's worth "spending" goodwill negotiating something that, for context, is on the order of 10% of SDE.

Also, how should I think about whether a sale-leaseback might make sense (seeing as purchasing the building is an option)?

Thanks in advance for any thoughts.

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4 comments

lender from University of Missouri - Columbia

Lots of reasons to buy and to pass on real estate. A lot of people look at their owner occupied real estate as an investment. That can be the case but###-###-#### showed that it can be an anchor as well. Eric and Walt makes good points in that you want to make sure if you are buying that you don't have to move in the next couple of years unless you want to. That can be cost prohibitive and an unwanted distraction as you are learning the business. On the flip side, owning the building gives you control so if you need to add space or change something in the building, you don't need to ask a landlord for their blessing. Real estate financing is pretty cheap right now (rates, not cost to acquire) so the timing to buy is pretty good. However it will eat at your capital for the down payment and could bind you to the property for a while so plan ahead with real estate 5+ years down the road.

3 years ago | like reply | 0 likes

investor from The University of Chicago - Booth School of Business

The decision to purchase (now or later) should be driven by i.) the long-term suitability and capacity of the property for the operating co. and ii.) the appeal of the property to others in the event the exiting lessee moves or implodes. The property would be of no or limited interest to the prof. RE investment community in the absence of ii.).

3 years ago | like reply | 0 likes

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