Unlocking Capital from Corporate Real Estate - Real Estate Sale Leasebacks When a private equity firms / sponsors evaluate an acquisition, there is one asset that can easily get less attention than it deserves: the real estate. If the target company owns the facilities it operates from, that property may represent a meaningful source of capital - both at the time of acquisition and throughout the sponsor's hold period. A sale leaseback can unlock that capital without requiring the company to move. The real estate is sold to an investor, and the business remains in place under a long-term lease. For a sponsor, the question isn't simply, "What is the building worth?" The better question is: "How can this real estate improve the economics of our investment?" Before the Acquisition Closes: We believe owned real estate should be evaluated while a transaction is still under LOI. If the value of the property and an appropriate market rent can be established early, a sponsor can determine whether a sale leaseback should become part of the acquisition financing. The proceeds could potentially reduce the equity required at closing, pay down acquisition debt, replace higher-cost capital, or preserve cash for future acquisitions and growth. There can also be an interesting difference between the multiple paid for the operating business and the implied multiple at which the real estate can be monetized. When that spread is attractive, the real estate may materially change the economics of the acquisition. During the Hold Period: The opportunity doesn't disappear once an acquisition closes. Many portfolio companies have substantial equity tied up in facilities that are essential to their operations but are not necessarily generating the highest return on that capital. Monetizing those properties can provide capital for add-on acquisitions, equipment, expansion, debt reduction, recapitalizations, or other strategic initiatives. Instead of raising additional equity or taking on more conventional debt, the sponsor can convert an illiquid asset into capital that can be redeployed elsewhere in the business. Before an Exit: Owned real estate should also be evaluated as part of exit planning. A future buyer may prefer to acquire an asset-light operating company rather than commit additional capital to its real estate. A sale leaseback can separate the two investments, allowing the sponsor to monetize the property independently while presenting buyers with an operating business under a long-term lease. But the details of that lease can significantly affect the company's value. It's Not About Getting the Highest Price: This is where structuring the transaction correctly becomes particularly important. A real estate investor offering the highest purchase price may also require higher rent, larger annual increases, a longer lease, stronger guarantees, or more restrictive terms. Those obligations remain with the portfolio company and can impact cash flow, EBITDA, leverage, and ultimately the sponsor's exit. For that reason, we focus on the combined economics of the real estate and operating company - not simply maximizing the property's sale price. A slightly lower real estate valuation paired with better lease economics can sometimes produce a better overall outcome for the sponsor. Think About the Real Estate Earlier: Sale leasebacks can be useful at multiple points in the private equity lifecycle: - Acquisition financing - Lowering the initial equity requirement - Funding add-on acquisitions - Growth capital - Debt reduction - Recapitalizations - Shareholder liquidity - Exit preparation At Malchus Real Estate, we help private equity firms, sponsors, founders evaluate owned real estate from an investment perspective - not simply as a property sale. We can analyze the potential real estate value, appropriate rent, expected sale leaseback proceeds, and various structures to determine how the transaction could affect the sponsor's overall investment. Have a portfolio company that owns its real estate - or currently evaluating an acquisition with owned facilities? We’re happy to provide an initial, no-obligation analysis of the property’s potential value, sale leaseback proceeds, and possible transaction structure. Contact Joel Cukier at redacted to discuss an opportunity. Thank you