American companies collectively own about $13.4 trillion in real estate.1 These assets—such as warehouses, offices, stores and other buildings—are essential for operations but rarely generate direct financial returns. This leaves a significant amount of capital tied up and underutilized on corporate balance sheets.
This piece explores how companies can access this capital through sale-leasebacks, the key considerations for businesses pursuing these transactions and what makes these opportunities attractive for investors.
Sale-leasebacks: Turning real estate into cash
A sale-leaseback is a transaction where a company sells a property it owns to an investor and then immediately leases it back—usually under a net lease. This arrangement allows the company to keep using the property for its operations while unlocking the value of its real estate and converting it into cash.
In a net lease, the tenant is responsible for some or all of the property’s operating expenses, in addition to paying rent. The most common type is the “NNN” or triple net lease—meaning the tenant covers all property expenses, including insurance, maintenance and taxes.
For many businesses, the main motivation for a sale-leaseback is capital allocation. By selling the property and leasing it back, a company can access the capital tied up in its real estate and redirect it toward core business activities or debt reduction. In many cases, a sale-leaseback can be immediately accretive, as the real estate may be valued at a higher multiple than the company’s overall valuation. Additionally, removing real estate from the balance sheet may improve financial flexibility and key financial ratios.
Several academic studies have shown that companies announcing sale-leasebacks often experience positive returns relative to the market, particularly when the proceeds are used to pay down debt. These outcomes have been observed across both the United States and internationally, suggesting that public markets consistently see value in these transactions.2
Sale-leasebacks can also provide additional benefits, such as operational flexibility and tax advantages. After the initial lease term, tenants may have the opportunity to renew the lease and continue occupying the building, or they can choose to vacate if the property is no longer needed—effectively creating a put option on the asset. There may also be tax advantages, as lease payments are typically fully deductible as business expenses.
Real-world value creation through a sale-leaseback
Consider a company worth $100 million, with $10 million of annual earnings (trading at 10× EBITDA). It owns a building worth $20 million that contributes nothing to EBITDA. By selling the property at a 6% cap rate, the company receives $20 million in cash and assumes a new $1.2 million annual rent expense.
EBITDA would decline to $8.8 million, implying an $88 million enterprise value at the same multiple. But with $20 million of cash now on the balance sheet—available to fund growth, pay down debt or distribute to shareholders—total value rises to roughly $108 million, an 8% increase achieved simply by monetizing an underutilized asset.
The investor’s lens: Credit with collateral
On the other side of a sale-leaseback is the investor, who now owns properties and will be compensated by lease payments from tenants under long-term, typically triple net, agreements.3
Net lease real estate is best defined by four key characteristics:
- Steady income: Net lease properties offer reliable, bond-like income streams. These long-term, single-tenant leases generate consistent rental payments, making returns less dependent on market fluctuations or active management. Additionally, a majority of monthly distributions may be classified as a return of capital, which can be tax deferred. This combination of income stability and tax efficiency makes net lease investments especially attractive compared to direct lending and corporate bonds.
- Inflation protection: Net leases often include annual rent increases, helping protect investors against inflation. Additionally, the underlying real estate can appreciate, offering further inflation protection. Lastly, in the case of NNN leases, the owner is shielded from rising expenses because the tenant is responsible for all property expenses.
- Access to private middle market enterprises: Net lease real estate is leased to a wide variety of American businesses, which can provide investors with exposure to small and medium-sized enterprises (SMEs), depending on the investment vehicle. This diversification is increasingly valuable as technology companies dominate public equity markets and fewer businesses go public, making it more difficult to access SMEs through traditional investment products.
- Low defaults: Data suggests that net lease investments have historically exhibited less risk than other segments of the fixed income market. For example, delinquency rates on CMBS loans backed by single-tenant commercial real estate are typically lower than default rates for speculative-grade (high yield) corporate bonds. Notably, delinquency rates are a more conservative metric, since not every delinquent loan results in a default.
There is no official benchmark for net lease real estate. However, a representative index tracking the returns of seven net lease-focused public REITs4 shows that these investments have outperformed both a traditional 60/40 portfolio and conventional real estate since 4Q 2011. Notably, a greater portion of these returns has come from income rather than property appreciation.
The correlation of net lease investments to a standard 60/40 portfolio shows as higher than that of typical real estate. This is likely due in part to our proxy relying on publicly traded equities, whereas the conventional real estate data is based on private fund values, which can be affected by appraisal lag.5
Conclusion
Sale-leasebacks and net lease real estate offer a practical approach for companies to unlock capital and for investors to access steady, inflation-protected income. However, with fewer than 500 properties worth $8.4 billion sold through sale-leasebacks last year,6 just a fraction of the $13.4 trillion in corporate real estate has been tapped. The scale of the opportunity ahead is significant for both business owners and investors.