Why is the plant outside the operating multiple?
SDE and adjusted EBITDA already reflect occupancy cost — or they should, once related-party rent is reset to market. If you then capitalize those earnings and also add the building at a hoped-for cap rate, you have counted the dirt twice or given it away, depending on who wrote the CIM.
This site’s earnings cells stay on operations. A sde-under-1m general CNC shop still sits at 2.0x–3.6x SDE. A ebitda-3-10m food co-packer still sits at 5.5x–7.0x EBITDA. The building is priced by a real-estate professional. Jason Taken will not invent a national factory cap rate. Industrial cap rates move with the metro, the clear height, the power, and the lease.
Asset value versus earnings value is about iron and working capital. Real estate is a third stack. Mixing all three into one “number” is how arguments start.
Related-party rent at zero inflates SDE. Related-party rent above market deflates it. Reset first. Then pick the cell. Then decide whether the buyer leases from the seller, buys the building, or sale-leasebacks it.
How should rent coverage be tested?
Take market rent for that building in that metro — not the related-party number — and ask whether the recast earnings can carry it after a replacement operator. If coverage fails, the business cannot afford the dirt at that rent. Either rent comes down, the price of the business comes down, or the deal is really a real-estate purchase with a tenant attached.
Power, cranes, floor load, truck courts, and process utilities are diligence on the property. M&E appraisals do not replace a building appraisal. Pits and sumps show up in both conversations.
Phase I under ASTM E1527-21 and EPA AAI (40 C.F.R. 312) is how adults start environmental diligence (Source: eCFR). A recognized environmental condition is an escrow, a price chip, or a walk — never a verbal shrug (see Acquisition Stars on manufacturing environmental diligence). That chip sits on the property stack. It can still kill the business sale if the buyer needs the building.
When does a sale-leaseback belong?
When the operator wants the P&L and not the balance-sheet real estate, or when the seller wants to keep the building as an investment. Counsel writes the lease: term, coverage, who pays environmental, who pays roof and floor, what happens on default. A handshake “we’ll work it out” is not a lease.
Sale-leaseback rent must still pass the coverage test. Inflated rent to juice a building price is how the business fails DSCR. Individual SBA buyers live on that math. SBA 7(a) remains a $5 million product (Source: SBA). 504 is the sibling that often carries eligible real estate and long-life equipment; a 2026 SBA article described a doubled cumulative 7(a)/504 limit of $10 million (Source: SBA). Eligibility is the lender’s call, not a CIM promise. See also SBA lenders.
| Structure | Business multiple | Real-estate stack | Watch-out |
|---|---|---|---|
| Buyer leases from seller | Operations only | Lease at market | Coverage; environmental |
| Buyer buys both | Operations + RE appraisal | Two prices, one close | Double count; allocation |
| Sale-leaseback | Operations | Third-party or seller landlord | Inflated rent / DSCR |
| 504 on eligible RE | Operations | Lender / CDC stack | Eligibility; not a quote |
| Business only, third-party landlord | Operations | Landlord consent | Assignability; remaining term |
How does SBA 504 change the conversation?
It can let an operator own the plant without stuffing the entire check into a 7(a). It does not change the earnings cell. It does not make a tired print shop a 7x EBITDA file. It does not replace a real-estate appraisal or a Phase I.
Form 8594 / IRC § 1060 allocation still exists when assets are sold. The building, the iron, and the goodwill need an allocation adults can defend. That is tax counsel and, when required, appraisers. How it works is the marketed-sale sequence, not a tax memo.
BizBuySell manufacturing median 2.75x SDE (2021–2025; Source: Iconic recap) is an operations figure. Adding an unsourced building number on top is how Main Street files get over-asked.
Why a national factory cap rate is invented
Because someone wanted a shortcut. Cap rates are local. A 40-year building with a pit and a REC in one metro is not a Class A box in another. This page will not publish a made-up national rate. Hire the local appraiser.
Jason Taken will separate the stacks on the intro call. Sellers: sell my manufacturing business. Buyers: buy a manufacturing business. Educational information only. Not a real-estate appraisal and not legal, tax, or environmental advice. No value is guaranteed.
How to write two prices on one teaser without confusing anyone
“Operations: size-band × sub-sector cell on recast earnings, cash-free / debt-free, market rent assumed. Real estate: separate; appraisal to be commissioned; lease or purchase to be elected.” That pair of sentences prevents 80% of the double-count arguments.
If the seller wants to keep the building, say sale-leaseback or third-party lease as the base case. If the buyer must own the dirt for a 504, say that as a structure option, not as a change to the earnings cell.
Environmental work that sits on the dirt and still kills the business sale
A REC that requires a Phase II the seller will not fund. A vapor issue under a leased building the landlord will not touch. A pit the M&E appraiser will not walk without an environmental sign-off. These are deal killers that look like “property nits” until they are not. Start Phase I early on any wet process, any older building, any plating or paint line.
Acquisition Stars is the tone: adults escrow, chip, or walk. Verbal shrugs are for people who have not bought a plant.
Allocation and the 8594 fight
Buyers want more to depreciable dirt and iron. Sellers want more to goodwill. The IRS wants a story that matches reality. If you carved the building out, do not allocate building value inside the operating company’s asset sale. If you included the building, get a real-estate appraisal and an M&E appraisal and let counsel write the allocation. How it works is not a tax memo. Do not treat it as one.
How to write two prices so the teaser cannot double-count the dirt
Operations: size-band times sub-sector cell on recast earnings, cash-free and debt-free, market rent assumed. Real estate: separate, appraisal to be commissioned, lease or purchase to be elected. Those two sentences prevent most double-count fights. If the seller keeps the building, sale-leaseback or third-party lease is the base case, not a handshake.
A REC that needs a Phase II the seller will not fund can kill the business sale while looking like a property nit. Start Phase I early on wet processes, pits, and paint. Allocation under 8594 must match the carve-out you claimed. Do not put building value inside an operating-company asset sale if you said the dirt was out.
A two-sentence teaser block that stops most double-counts
Operations: size-band times sub-sector cell on recast earnings, cash-free and debt-free, market rent assumed. Real estate: separate, appraisal to be commissioned, lease or purchase to be elected. If the seller keeps the building, sale-leaseback or third-party lease is the base case. Coverage must still pass. Inflated rent to juice a building price is how DSCR fails. A REC that needs Phase II the seller will not fund can kill the business sale. Start Phase I early on wet processes and pits. 8594 allocations must match the carve-out you claimed. Do not invent a national factory cap rate.
A closer read on two sentences
Operations: size-band times sub-sector cell on recast earnings, cash-free and debt-free, market rent assumed. Real estate: separate, appraisal to be commissioned, lease or purchase to be elected. If the seller keeps the building, sale-leaseback or third-party lease is the base case. Coverage must still pass. A REC that needs Phase II the seller will not fund can kill the business sale. Start Phase I early on wet processes and pits. 8594 allocations must match the carve-out you claimed. Do not invent a national factory cap rate. Do not bury a warehouse inside the operating multiple.
What a sale-leaseback does to coverage that a bundled price hides
When the seller keeps the dirt, the operating company needs a lease a third-party tenant would actually pay. Related-party rent that was set to zero so the owner could live in the building is not the run-rate. Related-party rent that was set high to soak cash is not the run-rate either. Reset to market, then test debt-service coverage on the operating company alone. SBA 504 can finance eligible real estate up to the published ceilings, including the higher small-manufacturer cap. That product does not forgive a plant that cannot cover market rent after the recast.
Phase I under ASTM E1527-21 and EPA All Appropriate Inquiries at 40 C.F.R. 312 belongs early on pits, plating, solvents, and underground tanks. A recognized environmental condition that needs Phase II the seller will not fund can kill the operating sale even when the earnings cell was honest. Start the work before exclusivity if the process family is wet. Waiting until the lender’s environmental desk asks is how files die in month four.
Form 8594 under Internal Revenue Code section 1060 must match the carve-out you claimed. If the CIM said the building was outside the enterprise value, the allocation cannot quietly put half the price on Class V and call it a day. Tax counsel drafts that form. A broker does not.
Do not invent a national factory capitalization rate. Local industrial brokers and a real-estate appraiser own that stack. Do not bury a warehouse used by the plant inside the operating multiple and then again inside a real-estate ask. Two stacks. Two engagements. One close calendar that admits both.