(Business 2.0 Magazine) -- Jeff Hayden preys on smallish companies on the brink. Not because he's a vulture investor seeking to turn around a struggling business. He just wants its real estate. And he wants it cheap, so he can then rent it back to the company for a juicy profit.

His strategy is a new twist on what's known as a buy-to-leaseback - a deal that's long been used by big companies such as Walgreens that want to get real estate off their books and raise cash. Plenty of investors are glad to have healthy, household-name companies like Walgreens as tenants, so they purchase their properties and then lease them back.

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But Hayden is striking deals with companies that big real estate investors ignore, and his approach could mark the emergence of a wide-open multibillion-dollar opportunity.

Hayden, who runs a three-man startup in Los Angeles called Asset Funding Group, compares himself to Michael Milken, who created the junk bond industry that offered access to capital to companies with lousy credit. The leaseback play, Hayden says, is real estate's version of the same notion.

"We finance high-risk clients, and we get higher returns," he says.

After a little more than a year, AFG has kicked the tires of 200 companies, and done deals with seven - five of which are old-guard manufacturing firms in the Rust Belt. These companies aren't just getting crushed by low-wage competition from China, they're also struggling with rising interest rates, which have hiked up their costs and crimped their ability to borrow.

But they still have one prime asset - the property their facilities sit on, often acquired generations ago and now worth several times the depreciated value listed on their books.

The harsh economic realities for Rust Belt companies have created some eager customers. One is Hastings Manufacturing, a nearly 100-year-old piston-ring maker based in southern Michigan that ran into extra-hard times by straying into product lines that didn't work out. Hayden swung a deal last year to buy Hastings's land for $2.6 million - 21 percent below its appraised value of $3.3 million. (On Hastings's books, it was valued at $275,000, minus recent building improvements.)

It was a win-win transaction: For Hastings, it brought much-needed cash and time to find a buyer. Private equity firm Anderson Group snapped up the business for $9.1 million, and put in turnaround specialist Fred Cook as the CEO. He overhauled it and trimmed operations, and the company is again making money.

"I don't mind the rent payments," Cook says. "If I'd had to buy Hastings plus its land, it would have cost me an additional $3 million."

For AFG, it's an even sweeter deal. It collects a market rent of $264,000 a year and, factoring in the steep discount it got on the land, earns a return that Hayden, who won't disclose details, says is 50 percent higher than what traditional leasebacks make.

The risks, of course, are greater when dealing with businesses on the edge. But it's not as perilous as it sounds.

For instance, bankruptcy laws offer investors some protection, as they give landlords preferential treatment compared with other creditors if a tenant goes into Chapter 11. The court cannot suspend or renegotiate a rental agreement; it can only order the tenant to continue paying the contractual rate or move to new digs, which is generally prohibitively expensive.

Hayden estimates that small to midsize companies are collectively sitting on $200 billion worth of real estate. And the market is bound to grow as globalization continues to swell the ranks of companies hungry to trade their land for cash, creating even more opportunity for niche players like AFG and others angling to get into this business.

"I get calls every week from people who want to get into the market," Hayden says.

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