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Selling the Building or Staying On as Landlord

Owners who also own their building face a bigger choice, and Dallas Business Brokers Firm sees many treat the real estate as an afterthought.

Look at it with the same care as the company.

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The short version

  1. If you own the building, you can sell both, keep it and become the landlord, or sell it separately.
  2. Buyers underwrite at market rent, so a below market lease lowers the price.
  3. Real estate is valued differently from a business, and the best time to sell each can differ.
  4. Have the building valued like any other asset.

Two assets, two values

A business is valued on earnings. A building is valued on the rent it produces, divided by a rate the market uses for that kind of property. The two methods are not interchangeable.

Real estate attached to a business is sometimes worth more than the business itself, depending on the industry.

The exit paths

  • Sell the company and the building together to one buyer
  • Sell the company and keep the building as landlord
  • Sell the building to an investor and lease it back to the buyer
  • Keep the building and never sell it, for income or estate planning

Many buyers cannot or will not buy the building too, because their own money is limited. Expect it may need its own buyer or plan.

Becoming the new owner's landlord

Staying on as landlord turns one asset into steady income. It also ties you to the buyer's success, so you will want a lease with clear rent, escalations and a security deposit.

Some owners start out wanting a full cash out, then prefer to become landlords once they see the numbers.

The rent question

If the company pays itself below market rent, that looks like a perk to you and a flag to a buyer. They underwrite at market rent, which lowers adjusted earnings and can reduce the multiple.

Fix the lease before listing. Owners have left large amounts on the table by selling without a market rate lease, and others have underestimated the building by tens of percent.

What buyers and lenders ask about the building

If you stay on as landlord, lenders may ask you to subordinate your claim to theirs on the assets. Attorneys negotiate this, and it can gate the loan closing, so raise it early.

A fixed base rent with clear renewal terms is easier to value and finance than percentage rent. State the renewal rate instead of "market at renewal."

Taxes and timing

Interest rates move property values, so the best time to sell the building can differ from the best time to sell the business. Tax tools such as a 1031 exchange exist, but they should support a decision, not drive it. Ask your CPA.

See how the lease works from the tenant's view in assigning a Dallas commercial lease, and request a private price range for the company.

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