Collins The Trend Tracker
by Mike Collins
February 26th, 2015

Maximize the Value of Your Business—and Your Real Estate

As mergers and acquisitions heat up in the building-products sector, many companies wonder if they’re holding their real estate assets in the best possible way. Like anything related to boosting a company’s value, there’s a right—and wrong—way to hold the real estate of a door or window manufacturer. That’s assuming the goal is to increase the value of both the company and the real estate.

Only a comprehensive analysis by tax and legal advisers can confirm the rule of thumb that it’s best to hold real estate in an entity separate from the company controlled by the business owner. That entity then rents the real estate back to the business. Some business owners make the mistake of charging themselves rent that’s far above or below market norms. To maximize the value of the business and real estate in an eventual sale, it’s better to charge market rent for the facility. While it’s possible to show an adjustment for the difference if the rent is off-market, the company’s earnings will have to be cut to reflect the higher rent the new owner will have to pay. Also, even if you confirm market-comparable rents, it can be difficult to get a buyer to agree to an increase in the rent above what the owner was paying himself. Again, it’s better just to peg to market rent rates.

In cases where a business owner also owns the land where the company operates, it’s best to tell potential buyers they must bid separately on the real estate and the business. In that case, the seller avoids having the value of the real estate get lost in the deal for the business. By forcing a separate bid, sellers can assess the business buyer’s valuation of the real estate at face value. If the buyer isn’t applying the correct value to the real estate, the seller can always bring in a real estate sale-leaseback group to buy the land from the seller and lease it to the buyer of the company. That boosts the value of the company and the real estate.

This blog is from Door and Window Market [DWM] magazine's free e-newsletter that covers the latest door and window industry news. Click HERE to sign up—there is no charge. Interested in a deeper dive? Free subscriptions to [DWM] magazine in print or digital format are available. Subscribe at no charge HERE.

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