LOS ANGELES-Astrum Investment Management has initiated a CRE private equity investment fund it calls Sale Lease-Back Buy-Back, or SLB3. It has already used the system to acquire five industrial properties in three states.

The fund's strategy works like this: AIM purchases properties directly from corporate owner-users. The property is then leased back to the former owner for 20 years, with the right to purchase it back at the end of five years at a pre-determined purchase price. The goal, Astrum claims, is to serve owner-users who want to own their corporate real estate over the long-term, but require liquidity to grow.

For investors, the SLB3 structure will seek to purchase real estate at what it terms “opportunistic prices,” deliver a high current income and long-term capital appreciation with reduced risk. AIM's investors will receive an 8.5% preferred return and claims it anticipates earning an average cash-on-cash of 11.25%.

AIM founder and managing director Nevil Sanli is also founder and president of Sanli Pastore & Hill, Inc., a business valuation and investment analysis firm. AIM claims it purchases properties direct from corporate sellers via relationships developed over 20 years by Sanli.

The five AIM SLB3 initial acquisitions, totaling 574,800 square feet of single-story industrial buildings in California, Virginia and South Carolina, were off-market transactions valued at approximately $14 million. Standard Mortgage Corp. provided the debt for the acquisition. The companies acquired were not identified.

AIM managing director John Hartman says the company is “actively pursuing purchases of middle market, industrial and office properties in the US in the $10-million to $75-million range” for the current fund. The goal is to invest up to $120 million this year, with a second fund of $250 million launching next year.

“AIM's target companies/sellers require special underwriting expertise, and are of no interest to private equity funds and larger banks,” Hartman tells GlobeSt.com.

Hartman says that AIM isn't targeting distressed companies that need a cash flow injection. “It's really designed for companies that need capital to grow and/or clean up the balance sheet for growth. After the recession, more companies than not have had some kind of distress, but it's more a reaction to the lack of liquidity in the middle market.”

The future value of the income in year five of the program is capitalized to determine the buy-back prices, “assuming the company is in good shape and credit-worthy,” says Hartman. “We assume that since the company has more cash and a stronger balance sheet, they are perceived as a stronger tenant and therefore the building will sell for a market cap rate. As an example, we might buy at a 10% cap rate on current rent, but sell back to the company at an 8% cap rate on rent in year five.”

Hartman says AIM has two thresholds for ROI, 20% and above and 15%-20%. “In order us to do a deal at 15%, we need a class-A property and a class-B tenant, or a class-B property and a class-A tenant. When we're working on 20% and above, it's usually a 'C' credit tenant and a 'B' property.”

As previously reported by GlobeSt.com, the city of Newark, N.J. tried a similar strategy with municipal properties in an effort to raise money to cover a government budget shortfall.