Should you acquire the operating real estate of your company?
Acquiring the property where your business operates is a common step for entrepreneurs. But is it always the right move? Let’s look at the pros and cons.
Buying property in the company vs. creating a Real Estate Company
There’s no one-size-fits-all solution. Your decision depends on your long-term goals. At the start, it’s often better to buy real estate directly from the operating company. This allows VAT deductions on construction work and access to subsidies. However, if you’re planning to sell the business in the next few years, it’s better to create a separate real estate company. This way, you can keep the property after the sale and continue to collect rent. Buyers often prefer this setup, as it avoids upfront real estate costs. You can also offer the buyer an option to buy the building or shares in the real estate company later. If the real estate is still within the operating company, it’s possible to spin it off before selling. A partial spin-off creates a separate legal entity. This solution avoids high taxes but must follow strict rules and be guided by a tax advisor.
Company valuation
In most cases, real estate is treated as a financial asset. It’s added to the company’s value like cash. When using valuation methods like EBITDA multiples or discounted cash flow, a notional rent is deducted. Then, the property value is added separately. This rent should reflect what the business truly needs to operate. Too high or too low can skew the valuation. This separation helps assess operational and real estate value with different risk levels.
Acquisition financing
Does owning property make your company more attractive to banks? It depends.
If the property is heavily mortgaged, its net value is low and doesn’t add much to the deal. If the property is mostly debt-free, it may raise the purchase price. This can make financing harder for the buyer, who may need to invest more personally. If the company lacks enough equity, the buyer can’t use the property as collateral, due to the financial assistance rules. In that case, the real estate must be financed through the acquisition loan, usually over 5–7 years.
However, if the company has strong equity, a debt push-down may be possible. The property is refinanced, generating cash that can be paid out as a tax-free dividend to the buyer’s holding company (under RDT conditions). The holding can then repay the acquisition loan. Banks often bridge this gap while the dividend is processed. Real estate is then financed over 15–20 years, with a mortgage to reduce the bank’s risk.
Final Thought
Owning real estate within a company can complicate a future sale. But with the right planning, it’s manageable. Some solutions take over a year to implement, so contact your M&A advisor early. A tax advisor will help structure the deal properly and ensure compliance.
