Franchisee Expansion Through Sale Leaseback Transactions

By: Chelsea Mandel
Published: December 19th, 2024

For franchisees, expanding to multi-location ownership is a natural pathway to increased profitability and brand presence. Yet the financial leap from single-location to multi-unit ownership can be challenging. One highly effective tool for franchisees looking to scale is the sale leaseback (SLB)—a financial strategy that unlocks capital tied up in real estate without sacrificing operational control.

What is a sale leaseback?

A sale leaseback allows franchisees to sell their property (e.g., restaurant, retail shop, showroom, etc.) to a real estate investor while continuing to operate in the same location under a long-term lease. This arrangement gives the franchisee an influx of cash to invest in new franchise locations or other growth-oriented initiatives, helping franchisees transition from single to multi-unit ownership.

Benefits of sale leasebacks for multi-unit franchisees

• Access capital without additional debt - Sale leasebacks provide franchisees with capital freed up from their real estate, allowing them to reinvest directly into expanding their business without taking on new debt. By unlocking real estate equity, franchisees can secure the funds to open additional locations, upgrade existing facilities, or invest in necessary equipment—without diluting ownership or accruing high-cost debt.
• Increased financial flexibility - Franchisees can strengthen their financial profile by converting real estate assets into cash. For franchisees looking to scale, this liquidity improves balance sheets and positions them as strong candidates for future franchise agreements or financing. 
• Expand without the risk of real estate market fluctuations - By selling the property and leasing it back, franchisees remove exposure to the volatility of property values. This approach can be especially beneficial when property prices are high, as it allows franchisees to monetize the real estate at a favorable price while maintaining operational stability.
• Fuel rapid expansion across multiple locations - A sale leaseback strategy is particularly effective for franchisees looking to move into new territories or grow their footprint aggressively. One of Ascension Advisory’s notable transactions involved a retail operator who used sale leaseback financing to expand to over a dozen locations within 18 months, with zero additional equity tied up in real estate​. For franchisees seeking a similar trajectory, sale leasebacks offer the financial flexibility needed to move quickly and strategically.
• Focus on core operations while expanding - With the sale leaseback model, franchisees retain control over the leased property, ensuring minimal disruption to daily operations. This allows them to focus on customer experience, brand consistency, and other core aspects while pursuing growth opportunities.

Real-world case study: Pizza Hut franchise expansion 

Grand Mere Restaurant Group, a prominent Pizza Hut franchisee operating over 145 locations across nine states, sought to expand its footprint without overextending its capital resources. In 2022, they opened a new Pizza Hut location in Castle Rock, Colorado, featuring the brand's latest design elements. To unlock the capital invested in this property, Grand Mere executed a sale leaseback transaction.

By selling the Castle Rock property to a private investor and leasing it back under favorable terms, Grand Mere accessed significant funds previously tied up in real estate. This strategic move provided the liquidity needed to reinvest in the business and support further expansion initiatives, demonstrating how sale leasebacks can serve as a powerful tool for franchisees aiming to scale their operations efficiently.

Next steps for franchisees considering sale leasebacks

1. Evaluate property value and strategic importance: Partner with experienced advisors to accurately assess the value of your operational property.
2. Align lease terms with growth strategy: Ensure the leaseback terms support your long-term goals, taking into account occupancy costs and rent coverage. 
3. Use proceeds for targeted growth: Direct sale leaseback funds toward location expansion, new franchise opportunities, or key operational upgrades.

For franchisees aspiring to multi-location ownership, sale leasebacks offer a viable path to rapid growth. By unlocking the value of existing real estate assets, franchisees can gain financial flexibility, reduce debt, and expand their footprint without losing control over operational spaces. For those ready to scale, a sale leaseback can be the catalyst for turning a single franchise into a thriving, multi-location enterprise.

Chelsea Mandel is the founder and managing director of Ascension.

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