If your business owns the building it operates from, that equity is sitting idle on your balance sheet. A sale-leaseback lets you sell the real estate for cash — often near 100% of appraised value, not a loan-to-value-capped fraction of it — and simultaneously sign a lease to keep operating from the same building without interruption.
A cash-out refinance still leaves you as the owner, subject to loan-to-value limits, debt service coverage tests, and a lender's opinion of how much of the equity they're comfortable advancing. A sale-leaseback is a different transaction entirely: you sell the fee interest outright, so the buyer is pricing the deal off the lease you sign back, not off a loan-sizing grid. That's why sale-leasebacks typically unlock more capital than a refinance on the same building — the trade-off is you no longer own the real estate, and rent becomes a fixed obligation on your books going forward instead of a mortgage payment building equity.
Where the Cash Comes From, and Where It Goes
The purchase price is driven primarily by the negotiated lease — its length, rent, escalation schedule, and how the lease allocates taxes, insurance, and maintenance (almost always structured triple-net, so the tenant keeps the same expense responsibilities as an owner). A longer lease term with contractual rent bumps generally supports a stronger sale price, because the buyer is underwriting a bond-like income stream. Proceeds are commonly used to fund expansion, pay down higher-cost debt, buy out a partner, or free up capital for the operating business itself rather than leaving it locked in the building.
What This Isn't
A sale-leaseback isn't a way to keep ownership upside — once it closes, appreciation on the real estate belongs to the new owner, not you. It also isn't a tax-free event; the sale can trigger a taxable gain, and the new rent expense replaces mortgage interest deductions on your P&L. We are not tax or accounting advisors, and every sale-leaseback should be run past your CPA before you sign anything — we structure the real estate side of the transaction, not the tax outcome.
Strong Sale-Leaseback Candidate
Stable, profitable operating business that can comfortably support the new lease payment long-term
Building is well-located and functional for the current use and for a future tenant if you ever vacate
Owner is comfortable trading ownership upside for a larger, immediate cash unlock
Real estate is a larger share of the balance sheet than the operating business actually needs
Needs Closer Underwriting
Thin or inconsistent operating income that would make a long-term lease commitment risky
Highly specialized building with limited value to any tenant other than the current operator
Owner expects to sell or relocate the business within the lease term
Real estate has appreciated sharply and the owner wants to keep that upside rather than sell it away