Have you ever wondered what to do if your property/real estate value is worth more than the actual value of your business? This is actually a common occurrence and a question we are often asked to provide guidance on. Our Senior M&A Analyst, Jared Tanke is back to provide informative insights and various scenarios.
Question: What should I do if my property/real estate is worth more than the value of my business?
Jared Tanke: I have heard this question much more frequently over the past few years as property values have appreciated at an exponential rate, and it’s a fair question. In last month’s Ask the Analyst, Jarod Bernat answered the question about the difference between valuing real estate as “highest and best use” and “Special-use” which goes hand in hand with this month’s question. There are a few different options to consider if this is the situation you are facing.
One possible scenario would be to sell the goodwill along with the business assets but retain the property. In this scenario, you will become the landlord and have certain responsibilities as negotiated in a lease agreement. Typically, the potential buyer will want to enter a long term lease agreement with you, so your option to sell the real estate is restricted, but this way you continue collecting rent, and maintain the full value of your real estate. This may be an attractive option if you already manage other real estate and this could be added to your holdings.
If the highest and best use value is significantly higher than the overall value, then scenario #2 may be to sell the real estate at its commercial value. However, in this scenario there are more questions to then consider. Do you want to continue to operate the business? If so, then we must identify a new property to move into. If not, then are you willing to cease current operations and liquidate the preneed book of business and other business assets? This is usually done by reaching out to the nearby funeral homes who would be the most likely to take on your preneed book and may be willing to assume some of your employees. This process ultimately would take longer as there would be multiple transactions to deal with.
Alternatively, there may be a way to carve out any extra property that is not being used for business purposes into a separate parcel that can be sold as commercial real estate.
Whatever the scenario may be, there will be pros and cons. We have seen them before and would love to help craft the best plan forward so you can maximize your value.