What is a sale-leaseback in industrial real estate?

What is a sale-leaseback in industrial real estate?

A sale-leaseback is a two-part transaction: the current owner of an industrial property sells the asset to an investor, and at the same time executes a long-term lease to continue occupying the building as a tenant. The transaction is typically structured as a single closing — the sale and the lease execute simultaneously. From the seller's perspective, the sale-leaseback converts illiquid real estate equity into deployable cash while preserving full operational continuity in the facility. From the buyer's perspective, the acquisition comes with an immediately tenanted building, known lease terms, and established cash flow from day one. Sale-leaseback transactions are common in the GTA industrial market for owner-occupiers — businesses that own their industrial facility outright or with mortgage financing, and who recognize that the capital appreciation in their real estate can be monetized without disrupting their operations. As GTA industrial land values rose dramatically between 2018 and 2023, many owner-occupiers found themselves holding industrial real estate worth multiples of their original purchase price, with that equity earning a lower return sitting in the building than it would if deployed back into their core business. Typical sale-leaseback structures in the GTA industrial market involve an initial lease term of 10 to 20 years, net lease obligations (tenant responsible for taxes, insurance, and maintenance), annual rent escalations of 2-3% or fixed step-up amounts, and one or two renewal options. The rent is negotiated at the time of the transaction and is typically set at or near the current market rent for the property — or at a slight discount if the seller is accepting below-market rent in exchange for a higher sale price. From a valuation perspective, the capitalization rate (cap rate) applied to the net operating income determines the sale price. In the GTA industrial market in 2026, core infill sale-leaseback transactions with strong covenant tenants on long-term leases are pricing at cap rates of approximately 4.5% to 6.0% depending on location, lease term, and tenant credit quality. Owner-occupiers considering a sale-leaseback should evaluate the after-tax proceeds of the sale, the cost of the new lease obligation over the full term, and the return achievable by redeploying the sale proceeds into the core business. A financial advisor and tax counsel should be engaged before proceeding — the tax treatment of the sale proceeds and the deductibility of the new lease payments are both material considerations. Michael Law advises GTA industrial owner-occupiers and investors on sale-leaseback structuring and execution across the 905 corridor. Contact Michael at mlaw@lennard.com or (905) 917-2045.