Competition Rising Rapidly For This Asset Type

Jason Fox, president and head of global investments at W.P. Carey, tells GlobeSt.com investors ask themselves a series of questions before entering into this type of deal.

ATLANTA—Competition is rising for quality sale leaseback opportunities that ultimately morph into net lease deals, which is only one of the challenges in this sector. Indeed, both corporate property owners and SLB investors face obstacles to getting these deals done. Jason Fox , president and head of global investments at W.P. Carey , tells GlobeSt.com investors ask themselves a series of questions before entering into a sale leaseback deal: Are you buying the real estate at the right price relative to its physical replacement cost and to other properties in the market?; Is the asset critical to the tenant’s business? If the tenant vacates the property, could it be easily adapted to the needs of new tenants?; Do you have a strong asset-management team that maintains an ongoing relationship with the tenant, stays up to date on the market and is aware of opportunities to enhance the value of or expand a property?; and In the case of vacancy, is the team positioned and equipped to release or sell the asset at a price that maximizes value for the portfolio? “The challenges can sometimes be in the actual papering of the agreement,” Gordon Whiting , managing director of privately-held investment advisor Angelo Gordon and the founder and portfolio manager of the firm’s net lease real estate strategy, tells GlobeSt.com. “While the parties may agree on the financial terms of a deal, at the end of the day, these are very long term contracts with a number of detailed provisions that need to work for all parties.” On the flip side, Fox tells GlobeSt.com corporate sellers occupying and maintaining critical operations in the facilities they sell to investors need to ask two key questions before inking a deal: Will the basic financial terms and structure of the lease give the seller liquidity and support its growth and operational strategies?; and is the buyer—the new landlord—a well-capitalized entity with a solid history of working with tenants to address ongoing needs in the facility, including funding any necessary improvements and future expansion? “Sellers are generally getting close to their wish list but because the demand-supply side is currently so one-sided,” Paul Domb , vice president of asset management at net lease investment firm United Trust Fund , tells GlobeSt.com. “The supply side, however, will remain weak as so many companies have in some form or another taken advantage of this low interest rate policy created by the Fed. When rates do go higher, it will then thin the massive herd of net leased investors.”