When iHeartCommunications was looking for ways to cut its corporate overhead after a 2008 leveraged buyout of its predecessor, Clear Channel Communications, it turned to W. P. Carey to help with one drain on corporate cash needed for debt repayments.

In February, W. P. Carey, a global net lease REIT specializing in corporate sale-leaseback financing, build-to-suit financing and the acquisition of single-tenant net lease properties, acquired iHeartCommunications' corporate center in San Antonio, TX, and leased it back to the broadcasting and outdoor advertising giant for 20 years. W. P. Carey paid about $22 million for the property, which iHeartCommunications uses mainly for its IT and finance departments.

“Corporations are realizing that real estate is not part of their core business and their investors are not investing in them to get real estate-like returns,” says Jason Fox, managing director with Carey. “They're looking for them to operate their core competencies, their operating businesses.”

Fox says W. P. Carey is not terribly concerned about exposure to credit risk, because even though iHeart is working down a lot of leverage, the building is absolutely critical to the company's remote operation of more than 800 radio stations around the country. “The likelihood is that if they did get into trouble where they had to restructure, this is one of the first leases that they would affirm,” he says.

Companies cashing out of their owned real estate generally categorize the property into different buckets, says Fox. “One is those they view as highly critical, and those they would be willing to do long-term sale leasebacks on,” he says. “Because of the critical nature of the real estate they want to maintain full operational control.” Those buildings would generally be triple-net leased over a long term, he says.

“On the other end of the spectrum are those excess properties that they no longer need or perhaps they own the real estate and are no longer a tenant,” he says. Banks are often in this situation, and Fox cites JP Morgan as an example of a client that exited from a wide range of customer service and operations centers, and regional headquarters buildings it no longer needed.

AT&T and Verizon have also been doing substantial real estate sales, either of vacant buildings no longer needed, and properties they will lease back, Fox says.

State Farm Insurance did a large sale-leaseback two years ago, Fox says. Now the company is doing a series of sale-leasebacks ranging from five to 15 years “depending on how important those properties are for their operations,” he says.

CBRE handled a sale-leaseback for Siemens in Woodbridge, NJ in which the electronics maker monetized its real estate while preserving its occupancy and restacking the building with open space instead of perimeter offices, says CBRE's Kevin Welsh. “It really revolved around the plan to restack the environment and change the space,” he says. “They had a very specific approach regarding furniture and collaboration, but they were smart, they took advantage of a very liquid capital market for that kind of transaction, which was a long-term net lease with an investment-grade credit.”

Historically low cap rate pricing for sale-leasebacks has moved many more companies into sale and leaseback transactions, says David Bernhaut, vice chairman of Cushman & Wakefield. 

After the wrenching dislocations of companies and their workforces caused by the last recession, exiting the real estate is merely a recognition that the workplace has changed dramatically—and permanently.

“So many companies have down-sized, they've right-sized, the operations are certainly more efficient than they used to be,” says DTZ's Frank Truesdell. “Whether it be through hotelling or virtual workspace, the need for large amounts of square footage has certainly dissipated, so why have that carrying cost? Why not come out of that and monetize that asset?”

In many areas, suburban corporate properties are attractive development opportunities for multifamily investors, Truesdell says. “Multifamily is extremely popular from an investment perspective at this point, so while the markets are favorable they will dispose of it and let it be repurposed into something more attractive,” he says.

Look for more on this article in the upcoming issue of Real Estate Forum. For more information and to participate, contact Gregg Christensen.

"Opportunities in the Sale-Leaseback Market & Build-to-Suit Developments" is just one of the discussions at RealShare NET LEASE where you can join experts from W. P. Carey and CBRE. Click here for full details.