We own the commercial real estate our operations run out of through a separate LLC. When we sell the operating business, should we bundle the real estate into the transaction or lease it back to the buyer, and how does this affect our exit valuation?

Question

Tyler Smith · Accepted Answer

Keeping your operating business and your commercial real estate separate is almost always the smartest move for maximizing your total wealth. Operating buyers are looking for cash-flow multiples, and they do not want their capital tied up in low-yield real estate assets. Bundling the two often depresses the overall valuation of both.

The recommended path on your exit runway is to structure a market-rate lease agreement between your real estate LLC and your operating business. Do this at least two years before you plan to go to market. This lease must be on arms-length terms, matching what an independent third party would pay for the space.

When a buyer reviews your financials, they will see a clean, predictable lease expense. When the sale closes, you sell only the operating company and retain ownership of the real property. The buyer becomes your tenant under a long-term triple-net lease, providing you with steady, predictable cash flow to support your post-exit lifestyle.

If the buyer insists on owning the real estate, negotiate it as a completely separate transaction with a separate valuation based on local real estate comparables, not as a multiple of your business earnings. This separation ensures you do not leave valuable real estate equity on the table during the business transaction.