# Owner-user industrial purchase comparing financing structures

Canonical: https://chicagocommercialfunding.com/deal-lab/owner-user-industrial-purchase-comparing-financing-structures/
Markdown: https://chicagocommercialfunding.com/deal-lab/owner-user-industrial-purchase-comparing-financing-structures/index.md
Resource ID: owner-user-industrial-purchase-comparing-financing-structures
Published: 2026-10-21
Updated: 2026-10-21
Attribution: Chicago Commercial Funding Editorial
Topic: deal-lab
Asset types: Industrial
Investment stage: Underwrite
Experience level: Advanced

An owner-user purchase must reconcile the real estate entity and operating business without counting internal rent twice, while preserving capital for both.

An owner-user acquisition contains two related investments: the building and the business using it. A lower property payment does not automatically improve the combined enterprise if acquisition equity consumes the cash needed for inventory, payroll, or growth. This hypothetical industrial purchase therefore reports property cash separately and then eliminates intercompany rent when examining the combined business.

The real estate thesis is a functional building supporting the operating business and an alternative tenant market. The business thesis must remain credible if customer demand weakens. Ownership does not make rent free; it changes the way occupancy costs and capital risks are funded.

All properties, tenants, leases, prices, costs, rates, and outcomes in this case are hypothetical. They are teaching assumptions, not market comparables, actual lender offers, or Jaken-funded transactions.

## Acquisition assumptions and balanced funding

| Initial use | Amount |
|---|---:|
| Purchase | $3,000,000 |
| Closing and financing costs | $100,000 |
| Physical work | $300,000 |
| Leasing capital | $0 |
| Opening operating liquidity | $200,000 |
| Contingency | $100,000 |
| Total uses | $3,700,000 |
| Initial selected debt | $2,400,000 |
| Required equity | $1,300,000 |

## Property economics and business economics

Assume a hypothetical operating company occupies the property under a documented related-party lease. Year-three internal rent is $350,000 and landlord operating costs are $70,000, yielding $280,000 property NOI. The property model assumes an escalating path from $250,000 to $300,000 NOI over the hold. These are analytical assumptions, not market-rent evidence or an assertion about SBA eligibility.

Research alternative premises, achievable third-party rent, landlord responsibilities, and functional utility. A building valuable only to the current business can have a different collateral and resale profile from a conventional multi-tenant industrial asset. Check power, loading, access, permitted use, systems, and the cost of adapting it for another occupier.

Fund $300,000 physical work at acquisition for the first-year program. No separate leasing allowance is assumed because the related operating business occupies immediately. If another tenant is required, add actual downtime, marketing, commissions, and delivery costs rather than treating the existing internal lease as freely transferable cash.

The OCC handbook provides primary commercial repayment and collateral context. A related-party lease remains an agreement between related entities; its nominal rent does not independently prove that the business generates enough outside cash. [OCC CRE handbook](https://www.occ.treas.gov/publications-and-resources/publications/comptrollers-handbook/files/commercial-real-estate-lending/pub-ch-commercial-real-estate.pdf)

## Two financing structures

The selected illustration is $2,400,000 at 7.0%, with monthly payments, 25-year amortization and a five-year maturity. Monthly payment is $16,963; annual debt service is $203,552. Modeled principal after 60 payments is $2,187,892. The full commitment is assumed funded at closing; any restricted capital is tracked separately.

The alternative is $2,800,000 at 9.0% interest-only for 2 years, with $252,000 annual interest and $900,000 initial equity against the same uses. Principal remains $2,800,000 at its stipulated maturity without paydowns. The closing-cost allowance is held equal only to isolate structure; real proposals need their own fees, reserves, conditions, and approval.

The interest-only alternative preserves $400,000 initial equity but creates a larger two-year repayment requirement. That preserved liquidity can matter to the business, yet the higher interest cost and short maturity can collide with an operating downturn. Compare its takeout using the income and collateral available in year two.

The selected structure amortizes and provides five years before maturity. Neither loan is an actual offer. SBA financing is a separate inquiry requiring eligible business purpose, borrower structure, property use, program rules, and lender review. SBA describes 504 as financing major fixed assets for eligible businesses and excludes passive rental investment from its intended eligible uses. The 7(a) program has its own purposes and conditions. [SBA 504](https://www.sba.gov/Loans/504%20loans/), [SBA 7(a)](https://www.sba.gov/loans/7a-loans/)

Do not assign a generic SBA leverage percentage or assume an owner-user label establishes eligibility. Obtain a documented program comparison, with current occupancy and entity requirements verified for the actual transaction. This case's numerical alternatives deliberately remain hypothetical conventional structures rather than unverified program quotations.

## Five-year cash and funding model

| Year | NOI | Debt service | Recurring replacements | Raw operating cash | Opening reserve used | Cash available before owner allocation |
|---|---:|---:|---:|---:|---:|---:|
| 1 | $250,000 | ($203,552) | ($20,000) | $26,448 | $0 | $26,448 |
| 2 | $265,000 | ($203,552) | ($20,000) | $41,448 | $0 | $41,448 |
| 3 | $280,000 | ($203,552) | ($20,000) | $56,448 | $0 | $56,448 |
| 4 | $290,000 | ($203,552) | ($20,000) | $66,448 | $0 | $66,448 |
| 5 | $300,000 | ($203,552) | ($20,000) | $76,448 | $0 | $76,448 |

The property table includes related-party rent as income and property debt as an expense below NOI. For the consolidated business, eliminate that rent on both sides. Otherwise the same operating dollars appear once in business earnings and again in property NOI.

For example, assume year-three business EBITDA after $350,000 related rent is $350,000. Adding back that internal rent gives $700,000 before occupancy. Subtract $70,000 property operating costs, approximately $203,552 property debt service, $100,000 other business debt service, $100,000 business capital spending, and $20,000 property replacements. Combined cash is approximately $206,448 before taxes, owner compensation adjustments, and other working-capital changes. Do not add the $280,000 property NOI to $700,000 again.

The $300,000 physical account is funded in initial uses and spent in year one. Initial operating and contingency funds are available only once. Recurring property replacement funding is deposited and spent annually. Actual business working capital needs a separate funded schedule; the property reserve cannot simultaneously support inventory unless its restrictions permit that use.

## Additional operating downside

A separate stress assumes $150,000 NOI and $150,000 additional unbudgeted capital in one stressed year. Cash after selected debt, recurring replacements, and that extra capital is ($223,552). Against the full opening operating/contingency balance of $300,000, the model uses $223,552 and requires $0 additional equity. This is a separate stress, not a claim that the same reserve remains intact after base-case draws.

The separate stress combines weaker property-supported earnings with unbudgeted capital. In an owner-user structure, a weaker operating company can impair both rent payments and the guarantor's capacity. A seemingly diversified pair of entities can therefore have one underlying cash source.

Prepare a consolidated downside with external sales, margins, receivables, inventory, payroll, occupancy costs, all debt, and capital needs. Then reconcile legal cash restrictions by entity. Consolidation explains economics but does not authorize one company to move restricted funds to another.

Investigate alternative leasing and sale options if the business relocates or fails. A specialized buildout may increase utility for the owner while reducing the pool of replacement occupiers. The physical investment requires an alternative-use analysis rather than automatic dollar-for-dollar recovery at sale.

## Concrete five-year exit and returns

Assume end-of-year-five sale with forward NOI of $300,000 and 2.0% selling costs. The scheduled-maturity model assumes no additional prepayment charge; actual payoff, taxes, and fees need confirmation.

| Exit calculation | Base cap | Higher-cap sensitivity |
|---|---:|---:|
| Exit cap | 7.5% | 8.5% |
| Gross price | $4,000,000 | $3,529,412 |
| Selling costs | $80,000 | $70,588 |
| Loan balloon | $2,187,892 | $2,187,892 |
| Net equity sale proceeds before reserve return | $1,732,108 | $1,270,932 |
| Remaining reserve returned | $300,000 | $300,000 |
| Total positive equity cash over hold | $2,299,346 | $1,838,170 |
| Total contributed equity | $1,300,000 | $1,300,000 |
| Equity multiple | 1.769× | 1.414× |
| Annual model IRR | 12.64% | 7.56% |

The five-year sale values the property using hypothetical forward rent and expenses, not the operating business's enterprise value. It assumes an enforceable, supportable occupancy arrangement acceptable to a buyer. If the business is sold with the property, its valuation, working capital, transaction costs, and debt require a separate coordinated model.

The return table measures only property equity on the full funded property basis. It excludes the operating business's invested equity, working capital, and operating distributions. It therefore cannot be described as the owner's combined return. The higher-cap sensitivity holds the property income path constant and changes only terminal pricing.

A year-five sale also requires a decision about where the business operates next. A sale-leaseback can produce proceeds while creating a continuing rent obligation; relocation can impose downtime and moving costs. Neither consequence appears automatically in real estate sale proceeds.

## Diligence and investment decision

Before committing, reconcile entity ownership, related agreements, outside business cash, guaranties, insurance, taxes, and transfer restrictions. Obtain legal and tax review of the structure rather than treating intercompany rent as an arbitrary plug.

Approve only if the building suits actual operations, the business retains adequate working capital, and repayment remains supportable under a combined stress. Compare owning with a credible lease alternative on the same horizon, including relocation and restoration obligations. A favorable property loan is useful only when the entire enterprise can carry it.

After closing, maintain property and business reports separately and consolidate them for owner decisions. Track external cash generation, related rent, capital commitments, debt compliance, and restricted liquidity. That discipline shows whether ownership is strengthening the business or merely moving its occupancy burden onto a different balance sheet.

## Source registry

- [OCC — Commercial Real Estate Lending handbook](https://www.occ.treas.gov/publications-and-resources/publications/comptrollers-handbook/files/commercial-real-estate-lending/pub-ch-commercial-real-estate.pdf): accessed 2026-10-21
- [SBA — 504 loans](https://www.sba.gov/Loans/504%20loans/): accessed 2026-10-21
- [SBA — 7(a) loans](https://www.sba.gov/loans/7a-loans/): accessed 2026-10-21

## Related resources

- [A Chicago investor’s guide to industrial property investment](https://chicagocommercialfunding.com/learn/industrial/)
- [Industrial property with an environmental diligence issue](https://chicagocommercialfunding.com/deal-lab/industrial-property-with-an-environmental-diligence-issue/)
- [Small-bay industrial acquisition and lease-up](https://chicagocommercialfunding.com/deal-lab/small-bay-industrial-acquisition-and-lease-up/)