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Why Brexit May Drive More SLBs

ATLANTA—The US government debt market is deepening. The yield on the benchmark 10-year note is at its lowest level since 2012.

By Jennifer LeClaire | jenniferleclaire | | Updated on June 29, 2016
Sale leasebacks offer a prime opportunity in today's market. Sale leasebacks offer a prime opportunity in today’s market.
ATLANTA—The US government debt market is deepening. The yield on the benchmark 10-year note is at its lowest level since 2012. Some analysts expect the yield to ultimately break the record-close low of 1.405% of July 2012. Although Treasure Secretary Jacob J. Lew doesn’t expect the Brexit to drive another financial crisis , it’s a headwind to watch. “The US economy is doing pretty well,” Lew told CNBC on Monday. “It’s performing in a stable, steady way even though there have been substantial headwinds” According to Joseph Yiu , managing principal of real estate private equity firm Elm Tree Funds , the low Treasury yields make now an opportune time for corporations to enter into long-term sale-leasebacks with lower rents. He tells GlobeSt.com he also sees proceeds and the concept of reinvestment as catalysts spurring the momentum. “If the corporation decides to own real estate , the asset on their balance sheet is constrained by their lenders loan covenants that limit leverage, and the corporation has to allocate expensive equity that could otherwise be reinvested into their operations,” Yiu says. “Through a sale leaseback, the corporation can unlock equity and get credit for 100% of the asset’s value today at multiples that are accretive to their operations. The value of the asset is determined by the corporation’s credit, location, and type of asset.” ElmTree is actively sourcing sale-leaseback transactions that have an add-value component through construction or renovation. Last year, one of ElmTree’s corporate clients identified a 67,000-square-foot office building in Birmingham, AL that fit its specifications for a customer care facility. ElmTree acquired the facility and immediately signed a long-term lease with the corporation. Concurrent with closing, ElmTree provided the tenant with a $6 million dollar allowance and provided construction oversight for the renovation of the facility. Is now a good time for SLBs? Sound off.

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