Why does zero rent on an owner-occupied plant lie about both stacks?
Above-market rent is the mirror lie. The owner has been pulling cash through the lease. Earnings look thin. The building looks rich. A buyer who accepts both numbers pays twice. Normalize, then decide whether the buyer leases back, buys the plant, or walks.
Main Street manufacturing in the BizBuySell 2021–2025 set cleared at a 2.75x median SDE with an interquartile range of 2.04x to 3.59x (Source: BizBuySell / Iconic). That cell is an operations cell. It is not a cap-rate cell. Do not stretch it over a warehouse.
How should sellers elect keep, sell, or split before the teaser?
Write the election on a single page: company only and stay-landlord; company plus building; or company now and building later under a financeable lease. Selling with real estate is the seller-cluster version of that election. This page is the occupancy version.
A keep-the-building election is not free of diligence. The buyer still needs a lease they can show a 7(a) lender. Term, options, and who pays for the roof belong in the LOI. A sell-the-building election is not free of 504 math. Occupancy, special-use equity, and a separate appraisal belong in the same week as the business quality-of-earnings report.
| Election | Who holds the deed | Typical buyer financing | What the CIM must not hide |
|---|---|---|---|
| Sell company, keep plant | Seller / RE LLC | 7(a) on the company; buyer is tenant | Market rent, term, roof, RECs |
| Sell company and plant | Buyer or buyer's RE LLC | 7(a) + 504 or conventional RE | Occupancy fraction, two appraisals |
| Lease now, sell dirt later | Seller today, investor later | 7(a) now; financeable lease required | Option / ROFR language |
| Split later "we will be flexible" | Undefined | Undefined | This is not an election |
HedgeStone will not market "flexible on the real estate" as if flexibility were a structure. Flexibility is how two bidders write two different deals and then accuse the CIM of bait.
What occupancy tests does a 504 buyer bring onto an owner-occupied floor?
SBA 504 for a plant purchase is an occupier program. On an existing building the small-business occupant generally must occupy at least 51%. On new construction the test is generally at least 60%, with staged lease-up rules the CDC will recite. A seller who has been renting a third of the plant to an unrelated tenant can break the fraction.
Standard CDC debenture authority is $5 million per small business and affiliates, or $5.5 million per qualifying small-manufacturer project (Source: SBA). Combined 7(a) and 504 context can reach $10 million after the 2026-07-04 clarification (Source: SBA / NAGGL). None of those dollars lets a buyer occupy 40% and call it close enough.
Special-use plants — food rooms, crane bays, process pits — often want extra equity in the stack. That is a credit fact, not a reason to stuff the extra cash into the operating multiple.
Who prices the dirt, and who may convey it?
A business broker opinion of the company is not an MAI appraisal of the plant. Hire a credentialed real-estate appraiser when the building is in the project. Conveying the deed requires a licensed real-estate broker for that piece. Jason Taken does not wear that hat.
Environmental work still sits on the property even when the same human owns both entities. Phase I under ASTM E1527-21 is ordinary on industrial use. New Jersey ISRA can add a transfer process on industrial establishments in that state. Do not copy ISRA onto a state that does not have it.
What does a 28-person CNC shop with a house-next-door owner look like?
The owner takes no rent, lives on the adjacent parcel, and wants to sell the company but keep the plant as a retirement check. Market rent for that industrial, quoted by a local broker who actually leases comparable bays, goes into the recast before anyone talks 2.75x. The lease term must outlast the 7(a) story the individual buyer will tell a lender. If the owner later wants to sell the dirt to an investor, the lease has to be financeable on day one, not "we will write it at close."
If instead a 504 buyer wants the building, occupancy of the existing plant must clear 51% and the appraisal must stand on its own. The house next door is not part of the 504 project unless someone puts it in the project, which this file should not.
Jason Taken is a business broker. He does not appraise industrial real estate, write leases as counsel, or convey deeds. Educational information only. Reset related-party rent, elect keep or sell before the teaser, and put a licensed real-estate professional on any conveyance. Owner-occupancy is a fact pattern. It is not a valuation method. Data current as of September 2026.
An owner-occupied election week
Monday. List the two entities, the deed, the mortgage, and the related-party lease if one exists. If none exists, write that absence as a risk.
Tuesday. Get a local industrial rent opinion from someone who leases that product. Do not use a national percentage.
Wednesday. Recast earnings with market rent. Recast the building as a separate asset. Look at both numbers before calling a buyer.
Thursday. Elect keep, sell, or lease-now-sell-later. Put the election in the process memo.
Friday. If 504 is a live path, call occupancy and special-use equity before the teaser claims 'SBA friendly.'
The teaser. Stays blind. It does not publish the rent number or the mortgage balance.
How should a mortgage that dwarfs the operating company be shown?
If the plant loan is larger than the company is worth on a size-band times sub-sector multiple, the project is a real-estate workout with a shop attached. Say so internally. Do not bury the mortgage inside enterprise value and hope an individual buyer "figures it out." Some files need a short sale of the dirt, a recast of the loan, or a pass. Honesty in the NDA room is cheaper than a collapsed exclusivity.
Transfer taxes and payoff figures belong on the deed closing statement. They do not belong as add-backs to SDE.
What does a third-party tenant in the back bay do to the story?
Owner-occupied is a majority story, not a purity test. A tenant in 8,000 square feet of a 40,000-square-foot plant can be harmless income or a 504 occupancy problem. Read the tenant lease for assignment, remaining term, and whether the use fights the buyer's process. A powder-coater next to a planned food room is not "flex income."
If the seller is the tenant of a related LLC, you do not have a third-party lease. You have a related-party lease that still needs market rent.
How should search-fund and individual buyers read owner-occupancy differently?
A searcher looking at Stanford 2026 medians — 2024–25 median purchase about $16 million at roughly 6.2x EBITDA (Source: Stanford GSB) — is often in a professional-management cell where a holdco can own the dirt. An individual 7(a) buyer under the $5 million cap is often rent-constrained. The same owner-occupied plant can be a 504 project for one and a leaseback for the other. Write both structures as options. Do not pick one in the CIM and then act surprised when the other bidder arrives.
How should property taxes, insurance, and the owner's personal shop in the corner be split?
Owner-occupied files often run the building insurance and the property tax through the company, the owner, or both in alternate years. Pull the bills. Decide which entity will pay going forward. A recast that removes property tax because "the buyer will own the building" is only honest if the buyer is actually buying the building. If the seller stays landlord, those taxes stay in the rent math.
A personal woodshop or boat storage in the back bay is not plant capacity. It is occupancy the 504 fraction and the lease both have to confront. Move it before marketing or disclose it as space the tenant will not get.
What survey, title, and access facts show up only because the owner lives next door?
Shared wells, a driveway that crosses the house lot, and a sign easement on the road frontage are owner-occupied classics. A company buyer who does not take the house still needs legal access to the dock. A 504 that only mortgages the plant lot can strand a truck if the driveway sits on the residential parcel. Order the survey early. Title work is not a week-twelve surprise.
If the owner wants to keep a life estate or a right to store antiques in the mezzanine, that is a lease problem. Write it or refuse it. Handshake storage is how year two becomes an eviction story.
How should seasonal overtime and a "we own the building so we can work Sundays" culture be recast?
Owner-occupants sometimes run hours a third-party landlord would never allow. Noise, truck curfews, and Sunday powder-coat batches are culture until they are lease violations. If the buyer will be a tenant, assume park rules. If the buyer will own, assume neighbors and the municipality. Neither assumption is "the way we have always done it."
BLS OEWS May 2025 medians (machinist $58,750; welder $53,750) describe pay (Source: BLS). They do not describe whether Sunday overtime survives a new landlord. Put the hour pattern in the operations memo next to the rent reset.