What Is a Sale-Leaseback in Commercial Real Estate?

A sale-leaseback is a transaction in which a company sells a property it owns and immediately leases it back from the buyer, so it keeps operating in the space while converting the equity locked in the real estate into cash. The seller becomes the tenant, the buyer becomes the landlord, and a lease governs the ongoing relationship. Companies use it to raise capital without moving or taking on traditional debt, and investors use it to buy a building that comes with a signed, long-term tenant already in place.

This guide explains what a sale-leaseback is in commercial real estate, how the structure works, why companies and investors use it, and what to watch in the lease. If you are evaluating one, the terms that decide its value sit in the lease and the purchase agreement, and sale-leaseback abstraction pulls them into one record so you can underwrite quickly. You can abstract the documents free to start.

How does a sale-leaseback work?

The mechanics are straightforward. An owner-occupier sells its building to an investor at an agreed price, and at the same closing the two sign a lease that lets the seller stay as a tenant, usually on a long-term net lease. The seller receives the sale proceeds up front and then pays rent over the lease term. The buyer owns the asset and collects the rent as an income stream. Everything that matters, the rent, the term, the renewal options, and any right of the seller to buy the property back, is set in the two documents signed at closing.

Why do companies use a sale-leaseback?

The main reason is capital. A sale-leaseback lets a company unlock the full market value of real estate it owns and redeploy that cash into its core business, an acquisition, or debt paydown, without leaving the location it depends on. It often raises more cash than a mortgage would, because it monetizes 100 percent of the property value rather than a lending percentage of it, and the rent can be structured to fit the business. Companies frequently weigh it against traditional borrowing, where a lender runs the property and the business through loan underwriting to size a mortgage instead. The tradeoff is that the company gives up ownership and the future appreciation of the asset, and commits to long-term rent.

Why do investors buy sale-leasebacks?

For a net-lease investor, a sale-leaseback is an income stream with a tenant already committed. The building is fully occupied from day one by an operator that has strong reasons to stay, since it just sold the property specifically to keep using it. That tends to mean long lease terms, built-in rent escalations, and a net lease structure where the tenant covers taxes, insurance, and maintenance. The investor's return depends almost entirely on the lease: the rent, the escalations, the remaining term, the tenant's credit, and any option that could end the lease early. That is why underwriting a sale-leaseback is really underwriting the lease.

What terms matter most in a sale-leaseback lease?

A handful of terms drive the value and the risk. The base rent and the escalation schedule set the income and its growth. The lease term and renewal options set how long the income is contracted. The net lease provisions decide who pays operating costs. The tenant's guaranty and credit determine how reliable the rent is. And any repurchase or purchase option matters both to the investor, because it can cut the income stream short, and to the accountants, because a repurchase option usually changes how the deal is booked. Pulling all of these into one place is what acquisition due diligence depends on.

Sale-leaseback vs a mortgage: what is the difference?

Both raise cash against real estate, but they are not the same thing. A mortgage keeps the company as owner and lends a percentage of the property value, typically well under 100 percent, secured by the building, and the loan sits as debt on the balance sheet. A sale-leaseback transfers ownership entirely, so the company can access the full market value of the asset, but it gives up the property and the upside and takes on a long-term lease instead of a loan. A mortgage preserves appreciation and eventual free-and-clear ownership; a sale-leaseback maximizes cash today and shifts the residual value to the investor. The right choice depends on the company's cost of capital, its need for cash, and how much it values owning the real estate long term.

What kinds of properties are used in sale-leasebacks?

Single-tenant, mission-critical properties are the classic fit: corporate headquarters, manufacturing plants, distribution centers, retail stores, and medical or lab space that an operator has strong reasons to keep occupying. The more essential the location is to the seller's business, the more confident the investor can be that the tenant will stay and pay for the full term, which is what makes the income stream valuable. Multi-tenant buildings and speculative space are far less common in sale-leasebacks, because the whole structure is built around one committed occupier who is also the seller.

Is a sale-leaseback a good idea?

It depends on what the company values more: cash and focus on its operating business now, or long-term ownership of the real estate. A sale-leaseback can be a smart way to fund growth from an asset that is otherwise sitting idle on the balance sheet, especially when real estate is not the company's core business. The costs are the loss of future appreciation, a long-term rent obligation, and less flexibility to leave the space. It also brings accounting consequences under ASC 842 that depend on whether the deal counts as a true sale, which is worth understanding before signing.

How is a sale-leaseback treated for accounting?

Under ASC 842, a sale-leaseback is a sale only if control of the asset transfers to the buyer under ASC 606. When it does, the seller-lessee removes the asset, recognizes an adjusted gain, and records a right-of-use asset and lease liability for the leaseback. When it does not, often because of a repurchase option, the deal is a failed sale treated as financing, and the asset and a liability stay on the seller's books. The full mechanics are covered in sale-leaseback accounting under ASC 842.

The bottom line

A sale-leaseback lets a company sell its building and stay in it as a tenant, turning real estate equity into cash while an investor gains a leased asset with a committed occupant. Whether it works for either side comes down to the lease terms: the rent, the term, the escalations, the tenant's credit, and any repurchase right. Get those terms into one clean record with sale-leaseback abstraction before you underwrite or account for the deal.