Own or Lease Your Building? 5 Tests Before You Lock Millions Into Real Estate

A manufacturer I know owns its factory outright. No mortgage, no landlord, three generations of pride in the deeds. The building is worth roughly 6 million euros. The operating business earns about 22% on capital employed. The building, priced at what a net lease investor would pay today, yields the owner about 6.5%.

So the family has 6 million euros invested at 6.5% inside a company that knows how to earn 22%. Nobody ever decided that. It happened because buying the building felt like security, and security is rarely audited.

Owning your premises is not a neutral act of prudence. It is a capital allocation decision competing with every other use of your money, and most private companies have never priced it.

The market has noticed. Net lease investment volume rose 24% to 48.1 billion dollars for the year ending Q3 2025, according to W. P. Carey, and CoStar data cited by Matthews Real Estate Investment Services shows sale-leaseback volume up 19% year over year from 2024 to 2025. Operating companies are pulling capital back out of their own buildings.

Our group was founded in Azagra in 1890 and now runs eight divisions, including real estate through Manzanos Habitat and hospitality at Palacio de Manzanos in Haro. We both develop property and occupy it. That double vantage point has taught me that the own-or-lease question has little to do with whether real estate is a good investment, and everything to do with which business you are actually in. Here are the five tests I run before any of our companies commits to a building.

Test 1: What does your operating business earn on capital?

This is the whole argument in one number. Calculate your return on capital employed in the operating business, then compare it to the yield the property would command from a passive investor.

• If your operations earn 20% and property yields 6.5%, every euro locked in the building is costing you roughly 13.5 points of return per year.
• If your operations earn 8% and are unlikely to improve, owning the building may genuinely be your best available use of capital.
• If you cannot calculate your return on capital employed at all, that is the finding. Fix the measurement before you spend seven figures on a decision it should govern.

Owning property is right for companies whose operating returns are mediocre and wrong for companies whose operating returns are excellent, which is the exact opposite of how most owners feel about it.

The emotional pull runs the other way because the building is visible and the foregone growth is not. Nobody photographs the production line you did not build.

Test 2: Is the building generic or genuinely special?

Not all property is the same asset class in disguise.

A standard warehouse near a motorway junction, a suburban office, a retail unit on a good high street: these are liquid, financeable, and any competent investor will own them. You bring nothing to that ownership that a pension fund does not bring more cheaply.

A nineteenth-century palace in Haro that is also your brand, a winery built around specific tanks and a specific microclimate, a facility whose layout encodes twenty years of process knowledge: these are different. The asset and the business cannot be separated without damaging both. A landlord could hold the walls, but the risk of losing control at renewal is existential rather than inconvenient.

Own what is strategic and irreplaceable. Rent what is a commodity with a roof on it.

Test 3: How long is your real occupancy horizon?

Transaction costs make property a long-horizon instrument. Purchase taxes, legal fees, brokerage and eventual disposal costs can easily consume 8% to 12% of value round trip. Over three years that swamps any rent saving. Over twenty it disappears.

Ask the harder version. Not "will we exist in ten years" but "will we need exactly this building, at this size, in this location, doing this activity, in ten years."

• Growing fast in an uncertain footprint? Lease, and buy the option to expand rather than the concrete.
• Stable, mature operation with a known space requirement? Ownership starts to look rational.
• Business model in flux, or a location whose long-term relevance is uncertain? SLB Capital Advisors makes the point plainly about sale-leasebacks: these structures suit facilities a company intends to occupy for the long term, and an uncertain location is exactly where a long commitment becomes a trap.

The mistake is not choosing wrong between owning and leasing. It is signing a twenty-year commitment, in either direction, to support a five-year plan.

Test 4: What does the property do to your exit?

This is the test almost nobody runs, and it is worth the most money.

Buyers pay a multiple for operating profit. They pay a yield for real estate. If a company earning 2 million euros sells at 7 times, its operating value is 14 million. The building inside it does not get a 7 multiple. It gets a cap rate, and it inflates the asking price in a way that shrinks the buyer pool, because trade buyers rarely want to fund a property purchase to acquire a business.

Separating the two before a sale usually raises total proceeds and always widens the buyer pool. The family can retain the property and become the landlord, or sell it separately to an investor who prices it properly. Either way the operating company is sold clean, on its earnings, to buyers who want earnings.

The same logic applies inside a family. Property divides easily among heirs who do not all work in the business; an operating company does not. Splitting them deliberately prevents the classic fight where the sibling running the company is also the tenant of the siblings who are not.

Test 5: If you already own it, what would a sale-leaseback actually buy you?

A sale-leaseback converts a building you own into cash plus a long lease. It is the release valve for a company that already made the ownership decision and now needs the capital back.

It is worth doing when:

• You have identified a use of capital that clearly beats the property yield, such as an acquisition, a production expansion, or retiring expensive debt.
• The facility is one you intend to occupy for the long term, so a fifteen or twenty year lease is a description of reality rather than a bet.
• You can negotiate the terms that matter: renewal options, rent reviews with a cap, assignment and subletting rights, and clarity on who pays for the roof.

It is a mistake when:

• The cash simply funds losses. You will have converted an asset into a fixed monthly obligation and delayed nothing.
• Rent is set above market to inflate the sale price. A high cap rate today becomes an uncompetitive cost base for two decades, and it is one of the most common reasons these deals unravel later.
• Your occupancy need is genuinely uncertain, in which case you are trading a flexible asset for an inflexible liability.

A sale-leaseback is a financing decision dressed as a property transaction. Judge it on the cost of that capital and the terms of that lease, never on the headline price.

For context, single-tenant net lease cap rates approached 6.75% by the end of 2025 according to RAD Commercial Realty, with market-wide averages in the mid-6% range. That is your hurdle. If the capital cannot beat it inside your own business, leave the building alone.

What we do, and why it is not consistent

We do not apply one policy across the group, because the tests do not produce one answer. Palacio de Manzanos in Haro is owned and will stay owned. It is not premises, it is the product and the brand, and no lease structure protects a business whose entire proposition is a specific historic building.

Generic operational space is a different conversation, judged on the cost of capital against what our divisions can earn deploying that money into inventory, distribution and market entry. Through Manzanos Habitat we also sit on the other side of the table, developing property for buyers, a useful reminder that the yield a building produces is somebody's business model. The question is whether it should be yours.

Key Takeaways

• Compare your return on capital employed to the property yield. That single comparison settles most own-versus-lease debates before sentiment enters the room.
• Own what is strategic and irreplaceable. Lease anything a pension fund could own more cheaply than you.
• Round-trip transaction costs of 8% to 12% make property a long-horizon commitment. Match the tenure to the plan you actually have.
• Real estate inside an operating company depresses the sale multiple and shrinks the buyer pool. Separate the assets before you go to market, not during.
• A sale-leaseback is worth doing only when you can name a use of capital that clearly beats a mid-6% yield, and when you control the lease terms.
• Rent set above market to inflate a sale price is one of the most reliable ways to sink a sale-leaseback years later.
• In a family, property divides cleanly among heirs and an operating company does not. Plan the split while everyone can still discuss it.

Frequently Asked Questions

Why would a company do a sale-leaseback?

To convert equity trapped in a building into cash without giving up occupancy or taking on conventional debt. Companies do it to fund an acquisition, an expansion, or the repayment of costlier borrowing, and it makes sense only when that new use of capital beats the yield the property was quietly earning.

What are the disadvantages of a sale-leaseback?

You give up future appreciation and control of the asset, and convert a flexible balance sheet item into a fixed, long-term rent obligation. Rent typically escalates annually, you lose the ability to repurpose the site, and at the end of the lease you have no automatic right to stay unless you negotiated renewal options up front.

What causes a failed sale-leaseback?

Most failures trace to rent set above market to inflate the sale price, leaving the operating company with an uncompetitive cost base for fifteen or twenty years. The rest come from weak tenant credit, cash used to fund losses rather than growth, and leases signed without renewal options or sensible rent review caps.

Is it better to lease or buy a commercial building?

It depends on what your operating business earns on capital and how certain your occupancy horizon is. Buy when operational returns are modest, the space requirement is stable, and you expect to occupy the building for well over a decade. Lease when the business earns strong returns on capital, growth makes your footprint uncertain, or the property is generic.

What is the 5% rule for renting versus buying?

It is a rough screening test borrowed from residential analysis: estimate annual unrecoverable ownership costs at roughly 5% of the property value, covering maintenance, taxes and the opportunity cost of the capital tied up. If annual rent is below that figure, renting is likely cheaper. It is a first filter, not a decision, and for commercial property the opportunity cost deserves your own return on capital rather than a generic assumption.

Why might a business owner opt to lease rather than purchase?

Flexibility and capital efficiency. Leasing preserves cash for inventory, hiring and expansion, avoids purchase costs, and lets a growing company change its footprint without a disposal. For businesses earning high returns on operating capital, that redeployed money is usually worth far more than the appreciation they forgo.

Price the building before you defend it

Take your largest occupied property this month, get an honest market value, calculate the yield it implies, and set it beside your return on capital employed. If the gap is wide and the asset is generic, you have found capital you already own. If the gap is narrow, or the building genuinely is the business, keep it with confidence. Either way you will have made a decision rather than inherited one.

See how the Manzanos Enterprises group allocates capital across eight divisions in more than 75 countries, and for the companion piece on finding cash you already have inside the business, read The Cash Conversion Cycle or our breakdown of the five places every dollar can go.