How Matthews™ Reduced Post-Buyout Risk Through Real Estate Diversification

Client Profile

A family-owned manufacturing company had successfully sold its operating business to a private equity buyer while retaining ownership of the underlying real estate.

 

As part of the business transaction, the buyer entered a new 10-year lease, providing the family with a long-term income stream while materially increasing the value of the property.

 

Like many former founders who retain real estate following a business sale, the family initially viewed the property as an attractive source of passive income. Over time, however, the risk profile began to change.

 

The Challenge

The property was an older, large-format industrial facility located in a cold-weather market, with meaningful future capital requirements associated with the roof, parking lot, and other building components.

 

The relationship with the tenant had also become increasingly challenging, particularly around responsibility for certain maintenance and capital items.

 

Additional considerations included:

• A substantial portion of the family’s net worth remained concentrated in a single property.
• The tenant was the same business the family had already sold, creating continued economic exposure to their former company.
• Significant capital expenditures were likely to arise during the remaining lease term.
• Contractual rent was above prevailing market levels, increasing the property’s current value but also creating additional residual risk if the tenant eventually vacated or the property needed to be released.

 

The family was therefore faced with an important decision: continue collecting rent and accept the long-term concentration, capital expenditure, and tenant risks, or monetize the property while the lease and tenant credit remained attractive to the market.

 

The Matthews™ Advisory Role

Matthews™ Corporate Advisory division, consisting of Aria Pournazarian, Brody Hess, Thiago Delia, and Adam Rose, worked with the family to evaluate the real estate within the context of their broader post-business-sale objectives.

 

The agents analyzed the value created by the newly executed lease against the risks associated with continued ownership, including property age, future capital expenditures, tenant concentration, above-market rent, and the amount of family net worth tied to a single legacy asset.

 

Rather than viewing the property solely as an income-producing investment, Matthews™ helped the family evaluate whether the real estate still represented the optimal risk-adjusted use of their capital.

 

The Execution Strategy

Matthews™ ultimately recommended taking advantage of the value created by the long-term lease and bringing the property to market.

 

Having originally acquired the real estate for approximately $1.5 million more than a decade earlier, the family had accumulated substantial embedded equity through both long-term appreciation and the lease structure established in connection with the business sale.

 

Matthews™ executed a targeted sale process designed to monetize that value while the property continued to benefit from a long-term lease and institutional tenant profile.

 

The Result

The engagement resulted in the reinvestment of proceeds into a diversified portfolio of NNN properties. The new portfolio provided more predictable cash flow, reduced management responsibilities, and greater geographic and tenant diversification.