As companies grow, expand into new markets, or modernize their operations, real estate often becomes an important component of the conversation. While many businesses focus on ownership versus leasing, the more strategic question is often: how should real estate support the company's broader capital and growth objectives?
Two commonly utilized structures are build to suit developments and sale leasebacks. Both allow companies to occupy mission critical facilities without tying up significant amounts of capital in real estate ownership, but they serve different purposes and create value in different ways.
Understanding when each strategy is most appropriate can help companies make more informed real estate and capital allocation decisions.
A build to suit transaction allows a company to develop a new facility specifically tailored to its operational requirements while preserving capital for core business initiatives. Under this structure, a developer or investor funds the acquisition, development, and construction of the facility, and the company enters into a long term lease upon completion.
Build to suit projects are often utilized when a company requires:
A larger or more modern facility
Specialized manufacturing or distribution capabilities
Expansion into a new market
Improved operational efficiency
The primary value of a build to suit transaction is customization. Rather than adapting operations to an existing building, the facility is designed around the company's needs, often improving productivity, workflow, and long term operational performance.
A sale leaseback allows a company to monetize an existing owned facility by selling the property to an investor and simultaneously leasing it back under a long term agreement.
Unlike a build to suit, which focuses on future occupancy needs, a sale leaseback focuses on unlocking capital from an existing asset.
Companies frequently use sale leasebacks to:
Generate growth capital
Fund acquisitions
Reduce debt
Improve liquidity
Reinvest in core operations
The primary value of a sale leaseback is capital efficiency. By converting an illiquid real estate asset into cash while maintaining operational control, companies can redirect capital toward initiatives that may generate higher returns than real estate ownership.
A build to suit strategy often creates the greatest value when operational requirements are driving the decision.
For example, a manufacturer that has outgrown its existing facility may benefit more from a purpose built property than from continuing to operate in a constrained location. Similarly, a logistics company expanding its distribution network may require a facility with specific loading, storage, and transportation capabilities.
In these situations, the operational benefits generated by a custom facility may outweigh the value of monetizing existing real estate.
The value creation comes from improved efficiency, scalability, and long term operational performance.
A sale leaseback typically creates the greatest value when access to capital is the primary objective.
Companies that own valuable real estate often have substantial equity tied up in facilities that are not generating a direct return. By monetizing those assets, businesses can access capital without issuing equity or taking on additional debt.
The value creation comes from redeploying capital into higher return initiatives such as acquisitions, expansion projects, equipment investments, or working capital.
For many CFOs and private equity sponsors, this ability to improve capital allocation is the primary advantage of a sale leaseback.
These strategies are not mutually exclusive.
Many companies use a sale leaseback to unlock capital from an existing facility while simultaneously pursuing a build to suit project to support future growth.
For example, a company may sell its current property, deploy a portion of the proceeds into business initiatives, and relocate into a purpose built facility developed through a build to suit structure. This approach allows the company to achieve both liquidity and operational optimization.
There is no universal answer to whether a build to suit or sale leaseback creates more value. The right strategy depends on a company's objectives.
If the priority is operational efficiency, expansion, and facility customization, a build to suit may be the optimal solution. If the goal is improving liquidity, strengthening the balance sheet, and redeploying capital into growth initiatives, a sale leaseback may offer greater value.
The most successful companies evaluate real estate not simply as an asset, but as a strategic tool that supports broader business objectives. When aligned with those goals, both build to suit developments and sale leasebacks can be powerful drivers of long term value creation.
Every company’s situation is unique. If you are considering a sale leaseback or build to suit transaction, contact the Ascension team to discuss your goals and explore the strategies that can best support your long term growth plans.