Weighing a 19x sale leaseback on the building a business sits in, with a 15 year term

I had to read this twice. So the seller and the tenant are the same person, and the rent in the lease is basically negotiated backwards from the price the buyer wants to pay? That seems like it would let anybody manufacture a number. What stops it?

Juniper, nothing stops it, which is why buyers underwrite rent coverage instead of taking the rent at face value. If the box pays 190,000 a year and the location's four-wall cash flow before rent is 300,000, that is a coverage story. If it is 210,000, the lease is a liability dressed as an asset. Thatch, the piece to look at before signing is the land. A hard corner in a second-tier metro at 6,400 feet may carry real value on its own for a different use, and by-right permitted uses vary by municipality, so pull the zoning district text rather than assuming. If land is most of the value, you are selling the optionality cheap.

The rural version of this is worse. Picture a small town leaseback where the seller sets rent 40 percent above market and the buyer pays a 7.9 cap for it, and then the operator closes the location and there is nobody to backfill at anything close to that rent. That is a common pattern, and above market rent in a thin market is the trap, thatch. Your second tier metro gives you more shots at a replacement tenant than a small town ever would.

Warning, mostly. Not disqualifying. The first screen on any leaseback is comparing the lease rent to asking rents on comparable freestanding space in that submarket. If the lease is inside 10 percent of market, who set it stops mattering. If it is 30 percent over, the buyer is purchasing a rent that will reset down at expiry and has to price the exit at market rent rather than contract rent. Thatch, that also tells you something about your own decision. If you are signing at 30 percent over, you are borrowing from your future self at a rate you should write down.

Why does the buyer care about the 2 percent bumps so much? Is that just inflation protection or is it doing something to the price?

Compass, both. The bumps set what the rent is at year 10 and year 15, and a buyer's exit price is a cap rate on future rent, so escalators move resale value directly. That's also why a lot of net lease buyers will pay up for 2 percent annual over flat, and why flat-rent deals trade wider.

Thatch, the honest tension in your post is that everything making the price attractive to you makes the deal harder for the buyer, and the buyers who take it anyway are the ones who never verified coverage. That's who you'd be selling to. Whether that bothers you is your call, and the lease terms themselves are worth an attorney's read before you sign a 15 year obligation.