The Importance of Understanding the Interplay between Real Estate and Operating Companies

When selling a business that owns real estate, it is crucial to understand how the real estate impacts the company's valuation. While some buyers may be interested in purchasing the real estate along with the business, most will negotiate a lease. The seller will generally seek a long-term triple net lease with a favorable cap rate, while the buyer will prefer a low-cost short-term lease with options to renew and rent escalation. The flexibility of the real estate can provide the seller with more negotiation leverage. A fair market value appraisal is a good starting point for determining the value of the real estate, but it is important to consider the common cap rates for real estate investments in order to accurately assess its worth.