I own our operating facility through a separate real estate holding company and lease it back to our business. How do we structure this lease on our exit runway to maximize our real estate cash flow while ensuring it is attractive to an outside buyer?

Question

Tyler Smith · Accepted Answer

When preparing for an exit, you must treat your operating business and your real estate as two completely separate assets. Buyers of operating businesses typically do not want to buy real estate; they want to buy cash-flowing operations.

You must restructure the lease between your holding company and your operating company to reflect fair market value before going to market. If your lease rate is too high, it artificially depresses the business's EBITDA, which will severely damage your business valuation. If it is too low, you are leaving real estate yield on the table and giving the buyer an unrealistic view of operating costs.

To optimize both assets:
- Establish a standard commercial lease with triple-net terms.
- Set the rent rate based on a formal, independent commercial real estate appraisal.
- Ensure the lease has a long-term duration, such as five to ten years, with clear transfer rights.

This setup gives the buyer the operational stability they need while securing a reliable, long-term tenant for your real estate holding company post-sale, maximizing your post-exit cash flow.