RealShare Net Lease conference
US Realty Advisors chairman Richard Ader was certainly of that opinion, saying he "absolutely" believes said there will be more corporate sale-leasebacks coming to market. The problem, he says, could be their size. "I think they're going to be too big, and debt financing is going to be a challenge."
Gordon DuGan, president and chief executive officer of W.P. Carey & Co., notes that in today's market, large transactions are proving difficult to price, too. Still, he said his company is able to buy properties from both sub-investment grade and investment grade tenants with good yields. Both Ader and DuGan were featured speakers on the conference's Town Hall Meeting: The Net Lease Market Today & Tomorrow panel.
Later in the day, these corporate real estate transactions were back in focus on a panel dedicated to the sale-leaseback marketplace. James Koster, managing director of Jones Lang LaSalle's corporate capital markets, said he is seeing two-and-a-half to three time as many offerings as he did just 18 months ago. "There is corporate appetite," he says, though he added later that investment grade tenants that have options available may be patient. "They won't sell into a buyer's market. They'll wait," he says.
The increased interest is directly linked to a lack of other credit available to corporations, notes CB Richard Ellis senior managing director Brian Scott, and is also driven by needs to free up capital or as an exit strategy to minimize real estate risk. Chad Adams, vice president of acquisitions for Century Equities Inc., notes he is hearing from a range of companies—from those that want to do a sale-leaseback to help finance business growth, to those looking to these transactions as a means of saving their business.
The new investment and financing environment is also causing a shift in sellers' expectations, and not just in terms of rising cap rates but also in terms of lease length and other deal specifics. Leases are getting longer than they were in recent years and heading back to more historical norms. "Fifteen is the new 10, 20 is the new 15," observes Brauvin Net Lease Inc. president and chief executive officer James Brault.
Cole Real Estate Investments director of acquisitions Joel Tomlinson spoke to this trend as well, saying that with very few exceptions his company is not doing deals with less than a 15-year lease term. "The structure needs to be a win-win for both parties," Tomlinson adds, "for the ongoing relationship to be successful."
In another example of adjustments, Brault said that going forward as his company structures new leases it is requiring fixed rent bumps, rather than CPI-based increases, which can easily be in negative territory in the current economic environment.
As a buyer in sale-leaseback transactions, Brault said he doesn't think his company gets everything it asks for--but the trend is clearly in the buyer's favor today. "I think we're getting closer," he says.
So with all the anticipation for rising sale-leaseback transactions, when will volume actually get on the upswing? If only someone could pinpoint the timing. "It's all tied to when the financing market comes back," says CB Richard Ellis' Scott.
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