Michelle Napoli is editor of Net Lease forum, from which this article is excerpted.
Oak Brook, IL—Inland American Real Estate Trust Inc., based here, is buying 216 properties in a sale-leaseback with SunTrust Banks Inc. According to a Securities and Exchange Commission filing by the REIT, the 1.15 million sf portfolio consists of eight office buildings and 208 single-tenant retail banking facilities. Located in eight states and the District of Columbia, the properties are garnering an all-cash price of $374.9 million.
As part of the agreement, Atlanta-based SunTrust will net lease back all of the retail facilities for 10 years, with the option to renew the leases for another 10 years and then six additional five-year periods. The biggest geographic concentration in the portfolio is in Florida, where there are 77 properties. The portfolio's average base rental income to Inland American will be approximately $27 million, with the lease terms including a 1.75% annual base rent increase. SunTrust announced in June that it planned to pursue a sale-leaseback strategy for nearly 475 properties in the Southeast and mid-Atlantic, including 48 office buildings and the rest retail branches.
From small branch locations to larger office buildings, bank facilities have become a staple in the net lease property market. Just recently, for example, affiliates of New York City-based JPMorgan Chase & Co. sold a portfolio of 3.6 million-sf of commercial space to the opportunistic real estate investments group of Brookfield Asset Management. The $300-million purchase included 52 properties in 14 states, and the bank “signed long-term leaseback agreements for significant portions of the space,” according to an announcement from Toronto-based Brookfield.
Last week, initial bids were due for a portfolio of 47 metro New York Citibank branch properties that are being marketed for sale by the bank's investment banking division, Citigroup Global Markets Inc. and Newmark Knight Frank. The properties, which total more than 157,000 sf in New York City's five boroughs as well in Nassau, Suffolk and Westchester counties, are expected to be double-net leased back by the bank for 15-year terms plus renewal options with annual rent increases.
“The response is strong,” Newmark senior managing director Kenneth Zakin told NET LEASE forum prior to the bid deadline, putting the number of parties that have expressed interest at about 100, including net lease players, a few REITs and local New York area investors. “What's attractive particularly about this portfolio is we are prepared to break it down to sub-portfolios,” Zakin says.
“It's a huge bank with great strength,” he adds. “The core business for the retail business is the branch network.” Zakin, who runs Newmark Knight Frank's 1031 exchange business and looks at net-leased properties around the country, says bank properties are popular with many investors.
“The perception is banks don't move. They put a lot of money into a location, they establish a business at that location,” he comments. “It's a relatively safe and attractive fit, as long as the bank has decent credit. So I think it's a very attractive product type.”
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