Commercial Real Estate as Part of a Business Sale

Introduction

For many business owners, the building where the business operates represents one of the largest assets tied to the company, yet it is often treated as an afterthought when planning a sale. Whether real estate is owned personally, through a separate entity, or directly by the operating business, how it is handled in a transaction can significantly affect both the structure of the deal and the value an owner ultimately realizes.

Real estate adds a layer of complexity that purely operational businesses do not have. Buyers may want the property included in the deal, may prefer to lease it separately, or may have no interest in owning real estate at all. Sellers who think through these possibilities before going to market are far better positioned to structure a deal that works for both sides.

This article covers the key ways real estate factors into a business sale, along with the risks and practical steps owners should consider.

How Real Estate Typically Fits Into a Deal

In many small and mid-sized business transactions, real estate is treated separately from the operating business, even when both are owned by the same person. This separation gives owners flexibility: the business can be sold on its own operating merits, while the real estate decision is negotiated independently. Understanding the available structures ahead of time helps owners enter negotiations with a clear sense of what they want and what buyers are likely to expect.

Common Approaches to Real Estate in a Sale

Including Real Estate in the Sale

Some buyers, particularly those seeking long-term stability or financing that bundles real estate into the loan, prefer to purchase the property along with the business. This can simplify the transaction and may be attractive to a buyer who wants full control over the location, but it also means the seller is relying on the buyer to value the real estate appropriately alongside the business.

Excluding Real Estate and Leasing to the Buyer

In many deals, the seller retains ownership of the real estate and signs a lease with the new owner of the business. This approach, often structured as a sale-leaseback when the seller wants to unlock business value while keeping the property, allows the seller to retain a long-term income stream and asset while still completing the sale of the operating business.

Valuing Real Estate Separately

Regardless of which structure is used, real estate should be valued using its own methodology, typically based on comparable property sales or income potential, rather than folded into the business’s earnings-based valuation. Mixing the two can distort both figures and create confusion during negotiations.

Risks to Monitor

Owners should be aware of several considerations specific to real estate in a business sale:

• Blending real estate value into business earnings multiples, which can misstate both figures
• Uncertainty among buyers about whether real estate is included, which can slow negotiations if not clarified early
• Lease terms that are unclear, outdated, or unfavorable if the seller intends to retain the property
• Financing complications, since many buyers use loan programs that treat real estate differently depending on structure
• Environmental, zoning, or deferred maintenance issues that surface during due diligence

Strategic Advice

Owners with real estate tied to their business can prepare by taking the following steps:

• Decide early whether the intent is to sell the real estate with the business or retain it as a lease arrangement
• Obtain an independent valuation or appraisal of the real estate separate from the business valuation
• If planning to lease to a buyer, prepare lease terms in advance, including length, rent, and renewal options
• Address any known property issues, such as deferred maintenance, before marketing the business
• Discuss real estate financing options with a lender familiar with structures available for business acquisitions

Conclusion

Real estate can be one of the more complex, and most valuable, elements of a business sale when it is handled thoughtfully. Owners who decide early how they want to treat their property, whether by including it in the sale, structuring a lease, or valuing it independently, give themselves and prospective buyers a clearer path to a successful transaction. Taking the time to address real estate as its own component of the deal, rather than an afterthought, protects value on both sides of the table.

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