A CRE accountant’s guide to the math of a sell-and-leaseback, including the part most companies get wrong.

Every few years, a financial strategy that’s been around forever suddenly gets rediscovered. Right now, that strategy is the sale-leaseback, and it’s showing up in boardrooms, earnings calls, and CFO conversations with a frequency I haven’t seen in decades.

The idea is simple enough. You own the building where you run your business. You sell it to an investor, pocket the cash, and then sign a long-term lease to keep occupying the space. You stay put, in a familiar place, with no business interruption. But now you’ve converted a fixed, illiquid asset into working capital you can use.

For some companies, it’s exactly the right move. For others, it’s a way to paper over deeper problems while quietly giving up something they’ll spend the next 20 years wishing they still owned. Knowing the situation you’re in requires getting honest about the numbers.

Why Companies Are Doing This Right Now

The appeal isn’t hard to understand. Commercial real estate values in many industrial and suburban office markets remained surprisingly firm amid recent economic turbulence, meaning companies that bought their buildings 10, 15, or 20 years ago are sitting on significant unrealized gains. At the same time, credit has tightened, and lenders who were generous in 2021 are considerably less so today.

A sale-leaseback sidesteps the bank entirely. You don’t need to qualify for a loan. You don’t pledge the building as collateral and hope the appraisal comes in right. You sell an asset at market value, get a wire transfer, and redeploy that capital on your own terms.

Working with commercial real estate operators and tenants every day, I see that the companies executing this well share one thing in common: they’re doing it from a position of strength, not desperation. The ones who struggle are the ones who do it because they have to.

The Case in Favor

Let’s put some real numbers on this. Say your company bought a 120,000-square-foot distribution facility in 2009 for $5.2 million. You’ve depreciated it on your books down to a net value of about $3.1 million. But comparable industrial properties in your submarket are trading at roughly $90 per square foot today, meaning the building is worth around $10.8 million.

You’ve got $7.7 million in unrealized gain sitting in your balance sheet, doing nothing. It isn’t generating revenue, and it isn’t growing your business. It’s just a building.

Sell it. Sign a 12-year triple-net lease at $6.50 per square foot ($780,000 per year), which is about where the market is, and you walk away with $10.8 million in cash, minus transaction costs and the capital gains tax hit on the $7.7 million gain (at the current corporate rate, roughly $1.6 million). You net somewhere around $8.8 million.

What do you do with $8.8 million? Pay down a revolving credit line you’ve been servicing at 8% interest. Fund that regional expansion you’ve been deferring. Invest in automation that cuts your labor costs. Any of those is a better use of capital than a building.

There’s also a meaningful tax argument. Under current rules, your lease payments become fully deductible operating expenses. You lose the depreciation deduction, but depreciation on a 30-year-old building is a slim benefit compared to deducting $780,000 per year at operating income levels.

The Case Against

Here’s why the pro-leaseback pitch doesn’t always work.

First, you just gave up your ability to benefit from future appreciation. If that facility is worth $10.8 million today and $16 million in 2035, that upside now belongs to your landlord. You cashed out at what felt like the top, only to find out it wasn’t.

Next, you also gave up control. As long as you owned the building, you could renovate it, expand it, encumber it as collateral, or sell it. Now you’re a tenant. If the building is sold to a new owner with different ideas about your lease renewal, your options narrow considerably. Triple-net leases with rent escalation clauses, often 2 to 3 percent annually, can make what looks like a manageable rent today feel expensive in year 10.

Finally, don’t overlook how this affects your balance sheet under ASC 842. Since 2019, operating leases have no longer been invisible. Your $780,000-per-year lease obligation gets capitalized as a right-of-use asset and a corresponding liability. If you were hoping to clean up your balance sheet, the improvement is less dramatic than it used to be. Lenders know this and model it in.

There’s also the signaling problem. When a distressed company does a sale-leaseback, the market often reads it as exactly what it is: a company converting its last major asset into cash to stay afloat. If that’s your situation, the transaction is transparent, and it may accelerate the concerns it was meant to quiet.

Here’s an Example

Let’s look at how this might work in practice, using a regional distributor as an example. The company owned its primary facility outright, with no debt, acquired in 2007. Strong balance sheet, profitable, but capital-constrained while trying to enter two new markets simultaneously.

The sale-leaseback generated $9.4 million net of taxes and transaction costs. They allocated $3 million to retire high-cost debt, $4 million to fund the expansion, and $2.4 million to technology upgrades. Their annual lease cost came in below what they’d been paying in combined ownership costs: property taxes, insurance, maintenance, and the implicit cost of capital tied up in the asset. By year three, the expansion was generating more EBITDA than the property ever would have.

Bottom line: the business is a distribution company and should not have been in the real estate business. That’s the right question to start with. What business are you in?

What to Evaluate

Before you call a commercial real estate broker, work through four things:

1. What are the realistic after-tax net proceeds, and is there a better use for that capital at a return that exceeds your implied rental cost?
2. What does the lease structure look like over its full term, including escalation, renewal options, and landlord rights?
3. How does this affect your leverage ratios and credit covenants? Some loan agreements have change-of-ownership provisions that get triggered.
4. What does the deal signal to your customers, employees, and lenders about the health of the business?

If the answers point toward doing it, do it. If they raise more questions than they answer, keep the building. Either way, run the numbers before you write the press release.

Explore related insights

Explore Insights & Resources

• • Article

  •

  September 10, 2026

  A New Playbook for NIL Earnings: What the HUSTLE Act Could Mean for Student Athletes

  Read more: A New Playbook for NIL Earnings: What the HUSTLE Act Could Mean for Student Athletes

  

• • Article

  •

  September 9, 2026

  SOX 404(b) Changes: Why Accountability Still Matters

  Read more: SOX 404(b) Changes: Why Accountability Still Matters