There's an old investing maxim: don't sell dirt. Land is the one thing no one's making more of. Buy it, keep it, pass it down.
Yet large MSOs and consolidators sell their real estate regularly, even strategically. For VIVE Collision, it's essentially policy. Caliber Collision's playbook is to build, occupy, sell, and start fixing cars. They unlock growth capital and say, "We're not in the real estate business" — and they're not wrong.
But every seller needs a buyer. Buyers can range from retired dentists with LLCs to real estate investment trusts (REITs), all seeking the same thing: steady, guaranteed income from lease payments. Large MSOs make ideal tenants.
So what does this mean for the independent shop owner who owns both the business and the building? Should you sell the land to tap its cash for expansion, capital improvements, or other needs? If not, why not? If so, how should you proceed? What if you're turning the business over to the next generation?
What if you plan to sell to a consolidator, who may sell the real estate anyway? Should you go first?
The sale-leaseback
Strictly speaking, a sale-leaseback means selling your land and buildings, then leasing back the property you just sold. The buyer becomes your landlord; you put the cash to work and become a tenant. The business continues to run, now with a lease payment added to the expenses.
A second approach, though it's not technically a sale-leaseback, is the reverse: You sell the business but keep the land and buildings, then lease to the new owner, maybe even an MSO.
You're the landlord; they're the tenant.
Industry advisors are split on the first approach. But when it comes to selling the business, nearly all recommend the second.
"I almost always recommend the owner hang on to the real estate," said Matthew DiFrancesco, whose High Lift Financial in Pennsylvania counsels owners on finances and succession planning. "Private equity usually doesn't want the real estate; this is how you create that generational wealth."
Laura Gay of Consolidation Coach echoes that view. Almost all her clients keep the real estate.
"It rarely makes sense to sell real estate," Gay said. "You worked hard to get it, so keep it."
The Florida-based consultant recalled one client who wanted to sell his Washington state shop but was hamstrung by a prior deal for the land.
For owners seeking cash, "it would be way better to get a loan," Gay said.
Not so slow, there
Others favor keeping the real estate too but say don't be too quick to discount the traditional sale-leaseback — selling your property and becoming a tenant.
Chris Lane, president of Focus Advisors, a California-based M&A and capital solutions firm, doesn't see many owners who've already sold their land, but he does see some.
"There are valid reasons owners would consider this prior to a full exit," Lane said.
If an owner can't get a loan or service the debt, Lane said, a sale-leaseback is an option. It can also work if you have a partner who wants out, but you want to stay. Or consider the generational wealth question: what if dad wants to cash out but the next generation can't afford to buy his share?
Michigan broker-developer Jason Miller of Grand Sakwa Properties LLC, concurs. Sale-leasebacks by small, independent shops "provide financing to the owners," he said. "This enables capital-starved independents or those that want to focus exclusively on operations to grow, offloading the real estate component to others."
Lane added that owners “can mitigate a lot of the risk…by selling your real estate to an investment group like a REIT and by requiring your lease be assignable upon a sale.” This is what consolidators do, he said, and what would have helped the Washington seller mentioned above.
Overall, "We would never recommend to a client that they definitively keep or sell real estate, as that decision is highly dependent on the client's personal and financial situation," Lane wrote.
Timing matters: sell the business first
One thing all advisors agree on: if you're selling the business, whether you plan to sell the real estate afterward or keep it as landlord, handle the real estate transaction after the business sale closes.
"We help them sell [the real estate] at or shortly after the business sale closing, so they get the full benefit of an advantageous lease we help construct, and a stronger tenant in place," Lane said.
The logic: an investor LLC or REIT will pay more for real estate once a creditworthy tenant, like a PE-backed buyer, is already in place. Land is seen as more valuable with a long-term lease attached, especially to a “credit tenant,” or a known, big-named national operator. The real estate involved is more valuable.
A Gerber Collision & Glass building in Tennessee sold for $4.4 million in October. A Connecticut Caliber property sold in December for $4.9 million. New York-based Bessemer Trust, which manages $200 billion for some 3,000 clients, bought a Caliber property in December for $5.5 million.
California's Four Corners Property Trust (NYSE: FCPT) paid $2.6 million in December for an Ohio property with a Crash Champions location. FCPT consistently buys collision repair properties, including three in Missouri in November for $5.9 million. A June multiunit deal with VIVE Collision totaled $4.7 million.
"The tenant matters," Gay said.
DiFrancesco said that if an owner does it the other way around, selling the real estate before the business, "the value goes to the new owner, not to him."
Gay is currently working with a client who first sold the business and kept the land. Now he's considering selling the real estate, too. On a property worth $1.5 million before the business transfer, "he's getting offers for $2.5 million."
A bit more than a decade ago, Gay herself faced the sale-leaseback option, ultimately selling her two East Coastcollision repair shops to Caliber and keeping the land. That's 10-plus years of value appreciation and collecting rent. Caliber still occupies one site; a new tenant is coming soon to the second.
MSOs love leasebacks
New York City-based commercial real estate platform Surmount has completed sale-leasebacks on 40 properties for VIVE Collision — about two-thirds of the MSO's portfolio. This has unlocked $100 million in capital for VIVE, according to a Surmount press release.
"We have flexibility in acquiring the business and real estate outright, or entering a long-term lease," VIVE SVP of Development Justin Kundrat said in an emailed statement. "Sale-leaseback transactions are an important tool in achieving this goal, freeing up the capital needed to further invest in our portfolio and advance our growth strategy."
"VIVE is M&A driven," said Surmount COO Nico DePaul, referring to the MSO's appetite for sale-leasebacks. But he added that "outside of the big players, it's becoming a more relevant tool for smaller operators. I'm talking to guys with one to five shops."
DePaul cites several reasons for this, including generational handoffs from parents to children. The example set by larger companies helps, too. "The VIVE guys are well-respected," he said.
"If you have high-cost debt, a sale-leaseback could pay it off," DePaul said. "Or if you want to acquire other shops, it funds that expansion."
Surmount does sale-leasebacks under several scenarios, including greenfield developments, and sometimes consults for VIVE on whether acquisition prospects will work for a sale-leaseback.
Should you fall in love?
Before doing this, DePaul said, ask and answer the hard questions as to why, specifically, you want to.
"Do you have an alternative use for the capital, such as CapEx, growth, or paying down debt?" he wrote in a follow-up email. Follow that with location-specific questions: does the property even financially support a leaseback?
"Independent shops aren't going to be as valuable" as tenants compared with consolidators, DePaul noted.
Witness the sale prices above. "An independent is not a credit tenant," Gay said. That's another reason not to sell your land before the business: potential buyers would be fewer, harder to find, and likely local or smaller. You'd get less.
DePaul also mentions the future sale of the business — whether and when — as something owners should ask themselves. That's borne out by those seeking and selling shops, a real-world indicator of whether to sell your land first. Ads and social media posts from buyers and sellers often use the phrase "with real estate" in lists of desires or benefits. Business and land owned by the same party is both something buyers seek and a selling point for sellers.
"The property itself is included (no leasing hassles!)" reads one listing. "Any body shops with real estate included in [state]" goes another. "Sale includes real estate." "Turnkey shop with real estate." The pattern forms.
Aside from time, and what feels like workers amid a technician shortage, land is an asset nobody's making more of.
"Commercial body shop real estate goes up in value because there's less of it," Gay said. "Don't leave money on the table."
