For many industrial operators, the company’s most valuable asset (real estate) is also the least productive. Millions of dollars in equity remain trapped in concrete and steel, while high-return priorities, such as equipment, automation, inventory, or market expansion, compete for limited capital.
A build-to-suit (BTS) triple-net (NNN) lease is a proven solution for financing new, purpose-built facilities. But what if your facility already exists and needs to be modernized or adapted for a new purpose?
A sale-leaseback (also referred to as sale and leaseback or SLB) converts a fixed, illiquid asset into working capital while maintaining control of the facility. Structured correctly, it can strengthen the balance sheet, fund growth, and modernize operations, all without taking on new corporate debt.
Why Consider a Sale Leaseback?
A well-structured sale and leaseback transaction can help you:
- Unlock Trapped Equity: Convert building equity into cash proceeds that can be redeployed into higher-return operating investments.
- Preserve Borrowing Capacity: Raise capital without layering on additional secured corporate debt.
- Modernize Without Moving: Expand or repurpose an existing facility instead of relocating to a new site.
- Stabilize Long-Term Occupancy: Match lease terms to your long-term operating needs and market strategy.
- Align Real Estate and Operations: Treat the facility as a “service” that supports the business rather than tying up capital in ownership.
Three Strategic Paths for Your Facility
Select and structure an SLB solution that best suits your needs. Choosing the optimal path depends on building the business case around the following:
- The primary business objective, i.e., liquidity, growth, or modernization.
- Findings from a thorough evaluation of the site and facility.
- Consideration of the complete project lifecycle, in light of the objectives and evaluation findings.
- Examination of the benefits, risks, and potential rate of return of each option.
When construction or renovation is involved, capital is funded by the buyer/developer and incorporated into the lease rate, allowing you to preserve or leverage your cash along one of three paths described below.
Path 1: Pure Sale-Leaseback (Liquidity Focus)
Scenario
- You are satisfied with the current size, layout, and location of your facility.
- Your priority is unlocking equity to strengthen the balance sheet or fund growth, without disrupting operations.
Transaction
- You sell the facility to an investment partner and simultaneously lease it back under a long-term NNN lease (often 15–20 years).
- You remain in place as the operating tenant.
Result
- You realize up to 100% of the property’s market value in immediate cash proceeds.
- You retain operational control of the building.
- Rent becomes a predictable operating expense, allowing your capital to be redeployed into the business.
Path 2: Sale-Leaseback + Build-to-Suit Expansion (Growth Focus)
Scenario
- You have outgrown your current footprint but want to avoid the disruption and risk of relocating to a new site.
- You need additional space and capital to support growth.
Transaction
- You sell the existing facility.
- As part of the transaction, the new owner funds a custom expansion and allows you to remain operational.
- Example: You add 50,000+ square feet of production, storage, or distribution capacity on the existing site.
Result
- Expansion costs are amortized into the new lease rate.
- You gain a larger, purpose-built facility.
- You get cash proceeds from the sale, with no capital outlay for construction.
- Operations remain on a known site with existing workforce and logistics advantages.
Path 3: Sale-Leaseback + Build-to-Suit Repurposing (Modernization Focus)
Scenario
- Your building shell is fundamentally sound, but the interior and utilities are obsolete or misaligned with current operations.
- You creatively convert dry storage to cold storage, support heavy automation with slab and racking upgrades, and expand power, water, and process utilities.
Transaction
- You sell the facility at its highest supported value.
- The investment partner then funds a comprehensive repurpose of the asset:
- Reconfigures interior layouts, utilities, and building systems to meet your modern operational requirements.
Result
- Renovation costs are rolled into the lease.
- You effectively receive a “new,” purpose-built facility inside your existing shell, designed around your current and future process flows.
- Funded entirely by the landlord.
Monetize Your Real Estate
By monetizing your real estate, you can redirect capital toward initiatives that directly drive competitive advantage and return on invested capital.
Typical Use Cases of Sale Leaseback Proceeds:
- Strengthen the Balance Sheet:
- Retire higher-higher-cost corporate debt.
- Improve liquidity ratios.
- Create a more flexible capital structure.
- Equipment & Automation:
- Invest in high-speed production lines, robotics, automated storage and retrieval, or conveyor systems that increase throughput and efficiency.
- Operational Resilience:
- Build inventory buffers.
- Expand distribution capabilities.
- Add redundancy in critical lines or utilities.
- Growth & Market Expansion:
- Fund new product lines
- Geographic expansion.
- Strategic acquisitions where your core business typically outperforms real estate yields.
The Advantage of a Fully Integrated Approach
Sale-leasebacks involving expansion or adaptive reuse projects are more than mere financial transactions. To prevent disruption of ongoing business operations, they require comprehensive front-end planning, detailed engineering, and concise construction.
Choosing the best path and maximizing your return requires an integrated team with expertise in industrial facilities, engineering, and process throughout SLB planning and implementation.
Your team should demonstrate proven competency and have the business attributes to perform the following core functions:
- Feasibility Analysis: Determine whether your existing facility and site can physically support the expansion, utilities, or process upgrades you need.
- Total Cost Comparison: Compare the lease rate and capital structure of an SLB + Expansion or Adaptive Reuse against alternatives such as a greenfield relocation or owner-developed construction.
- Integrated Execution: Coordinate planning, design, and construction so the upgraded facility is delivered to the acceptance criteria embedded in the lease.
- Operational Continuity: Plan phasing and construction around your operations to minimize downtime and maintain production.
Taking this integrated approach results in a “Zero Capital Burden” solution where real estate, engineering, and construction are aligned with your long-term operating strategy.
Which Path Fits Your Strategy?
Whether your priority is immediate liquidity, expansion on your existing site, or a comprehensive modernization of your facility, a structured sale and leaseback can convert non-productive equity into strategic capital and deliver a facility tuned to your process and growth plans.
Our Strategic Team would be happy to confidentially review your facility, capital objectives, and operational needs to determine which of these paths (or a hybrid approach) best aligns with your goals.
Contact Hansen-Rice to explore how a sale leaseback can support your next phase of growth, keeping your capital focused within your core business where it earns the highest return. In partnership with Arrowrock Development Group (www.arrowrockgroup.com), we are committed to delivering complex, customized facilities nationwide.
This article is part of our “Zero Capital Burden” series, which explores how industrial operators can unlock trapped capital while securing purpose-built facilities tailored to their processes and long-term growth.
Go to Part 1 on Build-to-Suit NNN Lease Essentials: Custom Industrial Facilities, Zero Capital Burden