CRE glossary
Sale-leaseback
A sale-leaseback is a transaction where the property owner sells their building to an investor and simultaneously signs a long-term lease to occupy the same space as a tenant. The seller-tenant gets a large lump of cash and converts a real estate asset into operating capital, while the buyer-landlord gets a stable, credit-tenant-occupied building producing predictable income.
Sale-leasebacks are most common with corporate owner-occupiers who want to free up capital tied up in real estate without disrupting operations. The structure is appealing because the company can deploy released capital into operations or growth where their cost of capital is higher than real estate.
Pricing is the central negotiation. Buyers price the deal based on the cap rate they want to achieve given the tenant's credit and lease term: a 20-year sale-leaseback to a Fortune 100 company might trade at a 6.5% cap rate, while a B-rated mid-market company might require an 8.5% cap rate.
Lease structure is usually long-term (15–20 years) absolute net (NN-N), meaning the tenant pays everything. From the tenant's perspective this means a higher operating-cost burden than a typical multi-tenant lease, but the tradeoff is having maximum operational control over a building they essentially still treat as theirs.
Sale-leaseback proceeds
Sale price = Annual NOI ÷ Cap rate
Example
- Annual base rent (NOI)
- $1,500,000
- Cap rate (Fortune 100, 20-yr)
- 6.5%
- Sale price
- $23,076,923
- Lease term
- 20 yrs, absolute net
Broker perspective
Sale-leasebacks are advisor-intensive deals. Sellers should pit multiple buyers against each other on cap rate (most important) and lease terms. The difference between a 6.5% and 7.0% cap rate is millions on a $50M deal.
Frequently asked
People also ask
Why sell a building you're using?
To free up capital. Companies often have higher returns on capital deployed in operations than in owning real estate.
How is it different from a normal lease?
It originates a brand-new lease from a previously owner-occupied building, with the same company occupying it before and after.
Does it help my balance sheet?
Pre-2019 yes (operating-lease accounting). Post-ASC 842 / IFRS 16, leases now show up as right-of-use assets and lease liabilities. Talk to your CFO.
Can I negotiate a buyback option?
Yes — sometimes. Buyers prefer not to grant them. Common: option to repurchase at FMV at year 10 or 15.
Related terms
Capitalization rate (cap rate)
Annual NOI divided by purchase price, how investors quote yield on a CRE asset.
Net operating income (NOI)
Gross income minus operating expenses, before debt service, the income line cap rates and valuations depend on.
Ground lease
Long-term lease (50–99 years) of just the land, tenant builds and owns the building on top.
See sale-leaseback extracted from a real lease.
Drop a 60-page lease, get a 38-field abstract in 90 seconds, every value cited back to the source page.