In our prior post, “Business for Sale with Real Estate–Implication,” I listed six implications of having business or business-owned real estate in a business-sale transaction. You can find that July 18,2010 blog post at  Generally these implications are market, real estate owner, and prospective-buyer perspective.

It is most advantageous if the real estate owner (either the business or business-owner) has either paid off the real estate or has low payments and other cash costs, does not depend on the rental income, and does NEED to sell the property for personal gain.  These positions give the property owner more flexibility.  In difficult seller-real-estate markets, if the real- estate owner can take lower than market rent for a period of time, it will enhance the sale of the business.

In the listing of the business, providing the prospective buyer with options for dealing with the real estate:

Offer the business for sale with a real estate lease at or below market rates with the opportunity to buy the real estate now or in the future.  Below market rates in the offer may not be wise unless it is the only way to have the business cash flow make sense.  It is unwise as it does not allow for the rent to be a negotiating point, securing the total package you want.  If you do offer the lease at below marketing rates, make it for a short term and perhaps with some business performance that triggers a higher rate.  When considering the rental amount for the lease, know that unless the location of the business is mandatory a buyer may flee as quickly as possible to a new business location.  (One need only watch the number of  moves businesses are making in this current economic environment to lower rental locations.  Also, many landlords are taking initiatives to reduce rents, hoping their reduce rent will keep them a viable tenant.)

The business-for-sale owner should be considering the entirety of the goal:  Sell the business with the right package to move on; have a viable tenant at the right rate over the long term; sell the property at the right rate at the right time.  Don’t allow pride of real estate ownership be detrimental to the entirety of the goal.  Also, know that the highest and best use of the real estate may NOT be the current business.   Be flexible in considering the sale of the business and outcome of the real estate in the transaction.

Professionals are best when they are working in the area of their expertise.   Business expertise,  valuations, operations and brokering, is complex enough, as is real estate valuation and brokering.  A business-for-sale owner should consider carefully their selection of broker(s).  When a lease is through a non-associated landlord, there is not much need for real estate expertise and the typical real estate professional does not know about valuation and marketing of businesses.  However, when determining the best lease and sale considerations for real estate owned by the business or business owner, real estate expertise IS important.  Know your professional’s qualifications.