Strandberg: How Real Estate Can Unlock Hidden Value

Previously published on Modern Tire Dealer.

Independent tire dealerships that control their real estate have a unique opportunity to monetize both sides of their operation.

When most tire dealers begin thinking about selling their business, their focus is often on operations: clean books, strong margins and retaining key technicians. Frankly, that’s where much of the focus should be. But there’s a powerful, often overlooked value lever hiding in plain sight: real estate.

The truth is, for many sellers in today’s market, the real estate on which their dealership sits can be worth just as much — if not more — than the business itself. And the best way to unlock that value? A well-structured long-term NNN lease with a high-quality tenant after your exit.

Well-located auto service real estate with strong tenancy and long lease terms is drawing significant attention from real estate investment trusts, private capital and 1031 exchange buyers.

These are often buyers who would have little to no interest in your property today, but tremendous interest if you had a longterm lease signed by your acquirer in the eventuality of an exit from your business.

The most sought-after assets are those backed by absolute NNN (triple-net) leases with 10 to 15 years of term remaining. In these cases, cap rates are compressing into the 6% to 7% range.

Some are trading even tighter, depending on tenant strength, demographics and property quality. It’s not just about brand names — though those don’t hurt. It’s about certainty of income, quality of lease and marketability of the asset.

If you’re generating $250,000 in annual rent and can sign a 15-year NNN lease with a well-regarded operator — or with the buyer of your business — you’ve just turned your property into a highly desirable income-producing asset. At a 6.25% cap, that’s a $4 million property. If you hadn’t locked in that lease, the building might be appraised as a general-use commercial property or discounted due to perceived risk. This is why many owners are now structuring a lease in advance of a sale, treating the business and the building as two separate — but complementary — assets. This approach not only boosts enterprise value in a sale, but also opens the door to sale-leaseback transactions, partial equity recaps or even long-term passive income streams post-exit.

You don’t need 100 locations to play this game. In fact, some of the most attractive opportunities in today’s real estate investment landscape are single-unit, high-performing stores with clean, assignable leases. Independent tire dealerships that control their real estate have a unique opportunity to monetize both sides of their operation. If you’re operating in a growing metro area, a major corridor or a tax-friendly state and you have strong store-level performance, investors and strategic buyers are likely to show interest in both the business and the real estate. The key is presenting each in the right light.

The most effective approach starts well before you go to market.

First, get clear on what your property is really worth — not as a vacant building, but as a leased asset with stable, predictable income. That means understanding current market rent, average cap rates, lease term expectations and how tenant strength plays into perceived creditworthiness.

Next, structure a lease that aligns with what investors are looking for — typically 10 to 15 years, annual escalations, triple-net terms and minimal landlord responsibilities. Whether you’re leasing back to your own business, to a consolidator acquiring your operation or simply setting up for a future transaction, this structure will increase the pool of interested buyers.

Finally, make sure your advisors understand both M&A and real estate strategy. The most successful transactions are those where both assets are positioned strategically, but flexibly — allowing you to sell them together, separately or retain one.

Too many sellers approach the sale process in absolutes, perhaps wanting to be totally done and requiring a buyer to acquire both the business and the property. In the case of real estate — especially when there is an opportunity to have a long-term lease with a national credit tenant — it might behoove you to have a bit of patience. A difference in the ultimate value of your real estate may ultimately be a deciding factor in who you sell to, assuming multiple options.

Real estate isn’t just where your business operates. It’s a vehicle for wealth creation. In today’s market, automotive retail locations with well-structured leases are trading like blue-chip financial instruments. For tire dealers who are thinking about a sale in the next one to three years, the smart move is to treat your real estate like the asset it is — not just the box your business sits in. If you’re looking to maximize your exit, don’t just sell your store. Sell its story. And make sure your real estate plays an appropriate role in the transaction.