RICHARDSON, TX—Another sale-leaseback of a 2 million-square-foot property in the Southwest signals the execution of a strategy State Farm designed as a priority several years ago, says Larry P. Heard, CEO of the Transwestern family of companies. The closing of the Tempe, AZ transaction is the third in a series. This transaction resembles the acquisition of the 2.2 million-square-foot State Farm campus in Dallas' CityLine project last fall and the 591,000-square-foot State Farm campus in Atlanta this summer.
Corporate Properties Trust III LP closed on the acquisition of the property in a sale-leaseback with State Farm Auto Insurance Co., according to Transwestern Investment Group. Transwestern believes the sale-leaseback structure has benefited both parties. Charles Hazen, president of Transwestern Investment Group, recently discussed the sale-leaseback model in this exclusive.
GlobeSt.com: What's the benefit of a sale-leaseback for investors?
Hazen: Investors appreciate the long-term stable cash flow from high-quality rental real estate. Typically, sale-leasebacks provide higher returns than bonds for similarly rated tenants, with the additional security of real asset ownership.
GlobeSt.com: What's the benefit for tenants?
Hazen: Companies that sell real property in a sale-leaseback do so for several reasons. First, they are able to re-deploy the capital they have invested in their real estate to their core businesses where they are typically able to earn much higher returns. Second, companies can benefit from long-term, stable ownership and professional management of their real estate, and transfer the burden and overhead of owning and managing assets that are not part of their core businesses. Third, significant savings in operating expenses and occupancy costs can be saved with a higher level of services by utilizing professional facilities management. Lastly, leases provide flexibility for space contraction or relocation at the end of the lease term without the burden of disposing of a significant capital asset.
GlobeSt.com: Are sale-leaseback transactions becoming more popular?
Hazen: Sale-leasebacks have been popular for a long time, however, as companies are required to compete more aggressively in today's environment, the need to use capital as productively as possible makes sale-leasebacks even more attractive.
GlobeSt.com: What kinds of businesses are executing sale-leasebacks?
Hazen: All types of companies and industries, including insurance, energy, retail, consumer products, financial services, transportation, manufacturing and healthcare.
GlobeSt.com: How many sale-leaseback transactions has Transwestern Investment Group executed?
Hazen: In the past 3.5 years, we have completed five transactions totaling more than $2.1 billion and 5 million square feet of class-A office space in the Dallas, Atlanta, Phoenix and Minneapolis, as well as 500,000 square feet of industrial space in the Inland Empire.
GlobeSt.com: What factors does Transwestern look for when considering a sale-leaseback?
Hazen: The primary attributes we look for are industry-leading companies as tenants, strong credits, mission-critical facilities, limited special purpose improvements, stable or growing markets and superior locations that have excellent access to regional transportation and proximity to employment, retail, restaurants and other amenities.
GlobeSt.com: Does Transwestern Investment Group plan to execute more sale-leaseback transactions, either with State Farm or another company?
Hazen: Absolutely. We believe we have an experienced team that has executed some of the largest and most sophisticated transactions in the industry and, as a result, can be successful helping other companies achieve similar benefits to those achieved by State Farm.
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Lisa Brown
Lisa Brown is an editor for the south and west regions of GlobeSt.com. She has 25-plus years of real estate experience, with a regional PR role at Grubb & Ellis and a national communications position at MMI. Brown also spent 10 years as executive director at NAIOP San Francisco Bay Area chapter, where she led the organization to achieving its first national award honors and recognition on Capitol Hill. She has written extensively on commercial real estate topics and edited numerous pieces on the subject.
