Redfield: The AT&T corporate-research facility sold for more than $101.5 million with a down payment of just below 10%. The asset comprises a 1.7-million-square-foot facility, split between a ground lease (leased fee) ownership and a fee-simple ownership on more than 250 acres. AT&T was bound with an absolute bond lease with approximately 10 years remaining and included some of the following technical deal points: balloon balance at maturity, a purchase option by the tenant (below the sale price) and multiple lease terminations.

The buyer for this asset was a foreign investor who was able to partner with a US group and add additional mezzanine debt up and above the current CTL loan balance. This was a very technical structure, which allowed the investor to overcome the difficult technical deal points of the transaction, achieve the seller's pricing objectives and solve the seller's phantom income (taxable loan principal reductions) issue.

The portfolio of 27 Flowers Foods locations sold for approximately $47.5 million with a down payment of just below 7%. The portfolio comprises 27 retail/distribution warehouse facilities with approximately 15 blended years remaining on the term.

The buyer for this portfolio was also a foreign investor looking for strategic trust planning and to expand its US portfolio through passive investment with strong credit and potential for long-term growth. Obstacles in this transaction were over-market rents for the warehouses in tertiary locations and the balloon balance at the end of the loan. Due to the minimum down payment and equity growth through the loan reduction, the buyer was able to step up to the seller's pricing expectations and solve the seller's phantom income issue.

GlobeSt.com: Where do you see the market for these types of deals heading, and what should our readers know about these types of deals?

Redfield: What has been a small and slightly lesser-known family in the net-lease sector, the zero-cash-flow market has increasingly picked up popularity with both domestic and foreign investors. Some of the benefits of these transactions include high leverage, security through solid credit and their non-recourse nature. The opportunities attract many different types of investor profiles, which include developers looking to pull cash out from an exchange, family-trust planners looking for passive investments with strong equity growth, sellers with high leverage exchanges and even investment or money managers looking to use these assets for tax advantages and portfolio diversification.

Zero cash flow assets can be great investments for the right profile. Owners looking to remove a heavy phantom-income issue are often surprised at the value they can achieve when sold to the right investor.

Hear the latest on Net Lease at RealShare's event on April 5-6 in New York City at the Essex House. Learn more here.

NEWPORT BEACH, CA—A small and slightly lesser-known family in the net-lease sector, the zero-cash-flow market has increasingly picked up popularity with both domestic and foreign investors, SRS Real Estate Partners VP John Redfield tells GlobeSt.com. Redfield and SRS broker Chris Tramontano recently facilitated the sale of nearly $150 million of zero-cash-flow assets including an AT&T office/R&D facility and two Flowers Foods portfolios totaling 27 locations. We spoke with Redfield about the transactions, how zero-cash-flow assets work and where he sees the market heading for these types of deals.

GlobeSt.com: What is a zero-cash-flow asset and how does it work?

Redfield: Zero-cash-flow or credit-tenant-lease loans are assets with very high leveraged loans wherein the loan payment is equal (or very close) to the rent payment (1.0 times the coverage). These loans are non-recourse—usually [or generally] only done with investment-grade tenants—and can offer various tax, leverage, equity-growth and liquidity benefits to investors.

GlobeSt.com: What are the details of two zero-cash flow assets you transacted in the first quarter of 2017?

Redfield: The AT&T corporate-research facility sold for more than $101.5 million with a down payment of just below 10%. The asset comprises a 1.7-million-square-foot facility, split between a ground lease (leased fee) ownership and a fee-simple ownership on more than 250 acres. AT&T was bound with an absolute bond lease with approximately 10 years remaining and included some of the following technical deal points: balloon balance at maturity, a purchase option by the tenant (below the sale price) and multiple lease terminations.

The buyer for this asset was a foreign investor who was able to partner with a US group and add additional mezzanine debt up and above the current CTL loan balance. This was a very technical structure, which allowed the investor to overcome the difficult technical deal points of the transaction, achieve the seller's pricing objectives and solve the seller's phantom income (taxable loan principal reductions) issue.

The portfolio of 27 Flowers Foods locations sold for approximately $47.5 million with a down payment of just below 7%. The portfolio comprises 27 retail/distribution warehouse facilities with approximately 15 blended years remaining on the term.

The buyer for this portfolio was also a foreign investor looking for strategic trust planning and to expand its US portfolio through passive investment with strong credit and potential for long-term growth. Obstacles in this transaction were over-market rents for the warehouses in tertiary locations and the balloon balance at the end of the loan. Due to the minimum down payment and equity growth through the loan reduction, the buyer was able to step up to the seller's pricing expectations and solve the seller's phantom income issue.

GlobeSt.com: Where do you see the market for these types of deals heading, and what should our readers know about these types of deals?

Redfield: What has been a small and slightly lesser-known family in the net-lease sector, the zero-cash-flow market has increasingly picked up popularity with both domestic and foreign investors. Some of the benefits of these transactions include high leverage, security through solid credit and their non-recourse nature. The opportunities attract many different types of investor profiles, which include developers looking to pull cash out from an exchange, family-trust planners looking for passive investments with strong equity growth, sellers with high leverage exchanges and even investment or money managers looking to use these assets for tax advantages and portfolio diversification.

Zero cash flow assets can be great investments for the right profile. Owners looking to remove a heavy phantom-income issue are often surprised at the value they can achieve when sold to the right investor.

Hear the latest on Net Lease at RealShare's event on April 5-6 in New York City at the Essex House. Learn more here.