Say YES to buy the real estate associated with the target company.
Often a business owner will prefer to retain the real estate, but act quickly if there's an opening to buy it.
SPV: Buy it in a separate, simultaneous transaction from the business, with the same or different LPs. Now you control both the operating company and the real estate, which avoid landlord conflicts, pays rent to your own pocket, and provides long-term stability. From the real estate side, you have 100% occupancy at pre-negotiated prices, so it's a very safe yield play.
Cross-collateral: Consider using the same lender as for the cash flow-based loan. They know & trust the occupant (the acquired business) of the real estate. In some cases you might be able to combine the loans, and since the bank can cross-collateralize you may get longer amortization, better LTV, and/or lower rates. Pro-tip: the seller might have a longstanding relationship with a local/regional bank who knows the company and RE and will be very accommodating if you approach them.
3rd party sale-leaseback: Alternatively you can help the business owner sell the real estate via a 3rd party sale-leaseback. You won't get the benefits of owning it long term, but this route can be especially exciting if the RE is "included" in the business purchase and FMV enables an arbitrage. Example: business is worth 4x, business owner wants 5x which also includes RE, and you can sell RE for the equivalent of 1.5x to a sale-leaseback at the same closing date, which brings your business valuation down to an effective 3.5x.
RYAN SULLIVAN, in today's episode of the Minds Capital Podcast, talks about how buying the real estate lowers risk, increases stability, and improves the balance sheet.
