Most sellers walk away from a closing and move out. In a sale-leaseback, they don't.
Here is the basic idea: a company owns the building it operates out of. It sells that building to an investor. Then it immediately leases the site (or part of the site) back and keeps running its business from the same space.
Nothing about the operation changes. The company still shows up to work on Monday. But something significant just happened on the balance sheet.
Why would a company do this?
Their capital was sitting in a building. A sale leaseback converts that illiquid real estate into cash they can deploy into the actual business: hiring, equipment, expansion, debt paydown. For operators who are good at running businesses but do not need to own real estate to do it, this trade makes sense. In the IOS space, we see this often with owner-users who are winding down or selling their business. The real estate was never the point. It was just the place where the operation lived.
Why do investors love it?
The classic appeal: you close with a tenant already in place. No lease-up risk, no vacancy period, a known operator (who just had a large cash infusion) paying rent from day one.
In IOS specifically, our sale-leasebacks often run shorter (typically three years or less). The tenant is transitioning out, and we go into the deal knowing that. The leaseback buys us time to identify a long-term tenant and bridge the vacancy period without starting from zero cash flow. We did exactly this at our Laredo acquisition on El Pico Road, executing a three-year sale-leaseback on the front half of the site at closing while we prep to lease the remaining acreage to a second tenant.
When the structure is right, it is a win on both sides of the table.
Have you ever seen a sale-leaseback done well or done poorly? What made the difference?
Wednesday Real Estate 101: The sale-leaseback
