Don’t Build Your Own Albatross

By Drew Sigfridson, SIOR | Senior Partner

“I own a machine shop in Oxford County and it’s a great, successful business! I built the shop in ’75 and business boomed, so I built three additions. Now I want to retire, sell the building for $3M, and move to Florida.” 

We hear stories like this one all the time, and then we go look at the property. All the additions have led to a Frankenstein’s monster of a building, patched together over decades with absolutely zero thought given to an eventual exit or alternative use. 

When you’re busy sweating payroll and expansion plans, thiking about your end game can feel unimportant. But how you hold, build, and time your business AND real estate positioning can be the difference between sipping drinks on a beach and getting stuck with an illiquid concrete albatross. 

Here’s one playbook we like to recommend that aims to avoid the “albatross trap.” 

Think ahead: The OpCo / PropCo Split 

If your business directly owns its building, the single best move you can make is to put your real estate in a separate LLC (the Property Company, or PropCo) and have your business (the Operating Company, or OpCo) enter into a lease and pay fair market rent. 

But, why? 

• Legal Separation: If your business faces a catastrophic lawsuit, your building is safe in a separate legal entity. 

• No “Fuzzy Math”: Your business looks artificially profitable if you don’t charge yourself rent. A separate lease gives business buyers clean financials and property investors a clear valuation. 

• Mailbox Money: When you retire or want to sell, you don’t have to find a unicorn buyer who wants both the business and the building. You can sell the widget business to a competitor, keep the real estate LLC, and collect passive rent checks while you golf. 

Beware the “Frankenstein’s Monster” Buildings 

I’ll use my family’s sawmill business as a cautionary tale. My father bought 50 wooded acres, built a house, a barn, and a small one-man sawmill. As the business grew, we built a specialized mill, sawdust sheds, kiln-dried storage, and random outbuildings. It worked perfectly… for us.  

But integrating the business and real estate so intimately really hurt the property’s resale value and limited the options for a future exit. 

The fix? Build a Box.  

It might cost more today to build a generic metal-clad warehouse with 24-foot ceilings and standard loading docks in a “traditional industrial park” when your current business only needs 12-foot ceilings. But 20 years from now, that boring box will spark a bidding war among distributors, while a highly customized, special-purpose building in a rural location sits vacant.   

Location, location, location—it never goes out of style. 

Timing is Everything 

Lastly, consider timing. We regularly see tired owners wait too long to sell. Once a business owner mentally checks out, revenues dip, deferred maintenance mounts, and buyers smell blood. 

Take a popular restaurant in Greater Portland as an example. The owner ran it brilliantly for a decade, but he got so burned out that he closed the doors first, and then put it up for sale. While the place sat dark, his loyal customers found new spots and the building suffered from vacancy trauma. Not a pretty situation and, as a result, prices drop precipitously. 

Be Proactive and Make a Plan 

Contrast the restaurant story above with a smart plumbing / HVAC supply company.  

This business owner wants to retire in three years. He cleans up his books, sells the operations for a premium while revenues are climbing, and simultaneously signs a 10-year triple-net lease with the new owner. He gets a massive cash payout and a decade of guaranteed rent, and all because he thought about his exit before it was time to execute. 

The Bottom Line 

Business climates can change overnight, and most owners are so hyper focused on running their business that the real estate is a means to an end, not a primary focus.   

Our expert team can help advise on your best approach to maximize your property value.  A key inflection point could be an expansion or downsizing need, an expiring lease or a resetting interest rate.  

Call us before you decide to build that addition, renovate your space, or add that new building down a long dirt road. It may cost a bit more upfront, but with the right planning, it can make for a valuable exit.