Extended capital-markets CFO
A property sale-leaseback releases capital by selling a building and remaining as a tenant. A mortgage raises debt while you retain ownership. Compare net cash today with long-term rent or debt service, property control and the value you retain or give up. The highest gross proceeds need not produce the best business outcome.
Decide how strategic the property is
Before a valuation discussion, establish whether the site is essential, replaceable or likely to change. A long lease may fit a stable operating facility but constrain a business expecting relocation, consolidation or redevelopment. Do not finance to a long occupancy assumption the operating team has not approved.
Make the comparison on equal terms
Set the same analysis period and show net proceeds after existing mortgage payoff, fees and estimated transaction costs. Model rent increases, maintenance responsibilities and renewal options alongside mortgage payments, refinancing exposure and residual property ownership.
- Include property taxes and capital repair obligations in both cases.
- Show the consequences of early exit or an expansion.
- Use explicit assumptions for end-of-period property value, not a hidden plug.
Tenant credit matters, but the lease matters too
Credit tenant lease financing is a distinct market focused on qualifying tenant obligations. A sale-leaseback may create such a lease, but not every property sale-leaseback is a CTL execution. The payment agreement and property facts determine the relevant market.
Market reference: Mesirow: credit tenant lease financing.
Check the decision with your accounting and tax teams
A sale can affect tax, reported gains, asset ownership and lease accounting. It is not a reliable shortcut to off-balance-sheet funding. Ask advisors to evaluate the proposed documents, not just a broker's summary. A transaction that fails the company's control or flexibility needs should be rejected even if the immediate liquidity is attractive.
Market reference: FASB: Leases, Topic 842.
Illustrative example, not a client result
The decision in practice
An owner-occupier comparing a sale-leaseback with a mortgage should put the retained property value beside the mortgage case, and the loss of that value beside the sale case. Comparing only annual rent with annual interest would omit a major part of the decision.
What to prepare
- Property details, use, occupancy plan and current valuation evidence
- Mortgage payoff, restrictions and major repair forecast
- Target liquidity and permitted lease or ownership constraints
For an initial conversation, a summary is enough. Share private materials only through an agreed channel.
Common questions
Is this the same as financing tenant improvements?
No. Selling the real estate and financing improvements inside leased premises involve different assets, owners and legal arrangements.
Does selling the property eliminate all property risk?
No. The lease can leave maintenance, taxes, insurance and other obligations with the operating company.
Sources and further reading
Our decision framework is CFO Signals analysis. External references describe market practices and products, not an endorsement, partnership or available offer. Terms and eligibility require confirmation for your transaction.