Solid groundwork, strong exit: Property considerations for exit readiness

The private equity market bounced back in 2024, and there were high hopes it would continue to do so in 2025. The recent tariff announcements from the US have slightly curbed this optimism; uncertainty on tariffs makes it difficult for PE funds and their portfolio companies to value their portfolios, understand the risk to a sale and make investment decisions. Nevertheless, unsettled market conditions can also create opportunity, so PE funds will no doubt continue to encourage their portfolio companies to look inward to create value and maximise returns on exit.

In today's competitive PE market, funds are under increasing pressure to deliver efficient and high-value exits. Many PE funds will have exit strategies in place for portfolio companies, with the focus often on financial performance and market positioning. However, real estate can play a key part in value creation and is often underestimated. A business' property portfolio can be a strategic asset or a material liability, and it can have a significant impact on valuation and deal timelines.

For PE funds, early and proactive management of property matters is key to creating and preserving value, maintaining momentum in a transaction, and presenting a resilient and scalable business to buyers. In this article, we look at some of the key property matters that businesses need to consider, to ensure that their property portfolio demonstrates its strategic value, scalability and operational resilience.

1. Optimisation

Value creation is a key focus for the PE market and as such buyers are increasingly focused on operational efficiency and future growth opportunities.

To present the business to buyers as agile, streamlined and/or scalable, sellers should consider a property audit to identify:

• Surplus property that is costing the business but isn't being fully utilised, and explore exit or downsizing strategies for those assets (e.g. assignments, subletting, exercising breaks, early surrender negotiations).

• Where sites are adaptable or scalable to support the growth of the business. Property portfolios that might involve complicated relocations or would restrict expansion could deter buyers.

• Where the property portfolio could be consolidated into more cost-effective operations, or in better locations for the strategic growth of the business.

2. Ownership

Buyers will expect to see correct, up-to-date title deeds and valid and subsisting leases. Whether the property portfolio includes freehold or leasehold premises, companies should be clear on:

Lease Terms

• Formal / Informal Occupation: businesses should check whether there are formal agreements in place for each property they occupy. Informal (e.g. verbal) arrangements will likely be a significant risk for a buyer – especially where the property is material to the business – and businesses should look to formalise where appropriate.

• Key dates: businesses should consider any imminent key dates e.g., upcoming rent reviews, break dates or term expiry. If a lease for a material property is due to expire in the next year or so, this will be higher risk for a prospective buyer – they will want certainty of continued occupation.

• Terms: businesses may wish to review their leases for change of control obligations, assignment provisions and early-termination rights. These provisions could affect continuity post-exit, or impose restrictions or conditions on a tenant's ability to transfer their leasehold interest to a third party (either via a share sale triggering change of control, or an asset sale requiring an assignment).

Registration

• Freehold: freehold interests should be registered at the Land Registry in the correct company name. Discrepancies can often be corrected, but failure to address them can delay transactions or reduce buyer confidence during the transaction.
  
• Leasehold: leasehold interests should be noted on the landlord's title and/or separately registered (where registrable).
  

3. Environmental, Social, and Governance (ESG)

ESG is a continued focus for investors and buyers. Property portfolios that are not compliant with the latest energy, fire safety, accessibility and environmental standards can pose liabilities on the business and future buyers. Sellers should:

• Ensure that Energy Performance Certificates (EPCs) meet minimum standards
• Consider implementing ESG initiatives e.g. use of renewable energy, waste reduction and sustainability reporting

4. Practicalities

Sellers should have property documentation available and well-organised to keep up momentum during a transaction and demonstrate operational maturity. Buyers will expect to see:

• Leases (signed and dated copies)
• Title documents
• Rent schedules and/or demands
• Service charge accounts and demands
• Maintenance, alterations and capital expenditure history, including details of any dilapidations/reinstatement accruals

Sellers may wish to consider a VDD process to get exit-ready – see our article here for further guidance.

Conclusion

To get exit-ready and maximise return on exit, private equity portfolios should take a strategic and pro-active approach to their property portfolio(s). By embedding real estate considerations into their exit playbook, PE portfolios can unlock stronger valuations and smoother exits.