US Investors Go Abroad For Net Lease Opportunities
“The market in the US is fairly developed and many of those players are focusing on just sub-asset categories such as car dealerships, casinos or gas stations.”
NEW YORK—Tired of the competition and seeking to better diversify portfolios, an increasing number of net lease investors in the US are going abroad for new opportunities.
One example is Georges Asmar, the president and managing director of recently-established LeadCrest Capital Partners, which has offices in Paris, Luxembourg, London and New York. Asmar, who has an extensive background with US firms such as Colony Capital and W. P. Carey Inc. and attended the Wharton School at the University of Pennsylvania, set up LeadCrest to specifically target net lease opportunities in Europe. “There are exciting things happening in net lease in Europe right now,” he says.
For starters, there is much less competition in Europe’s net lease markets, especially compared to the US where Asmar says there are 40 plus players. “The market in the US is fairly developed and many of those players are focusing on just sub-asset categories such as car dealerships, casinos or gas stations.” Also, the credit arbitrage of European companies compared with US companies is much more favorable, he adds, stating that the company has several million euros of deals in the pipeline.
The larger players are also establishing footholds in overseas markets. Earlier this year San Diego-based Realty Income Corp. signed a definitive agreement to acquire 12 long-term net lease properties in the UK for roughly $555 million from a joint venture of affiliates of J Sainsbury PLC and British Land PLC. The transaction was Realty Income’s first international real estate acquisition.
The international deal represented a natural evolution of the company’s strategy,” said CEO Sumit Roy at the time. “We believe that the size of the European net lease market and a need for a large-scale, well-capitalized institutional real estate partner creates a very propitious environment for us to increase our addressable market.”
The strong real estate fundamentals and the stability of the UK economy make it a compelling market for long-term real estate investment, he added, also noting that the sale-leaseback transaction was executed at investment spreads relative to the REIT’s first-year weighted average cost of capital that exceed its historical average.
Global Net Lease is a third example. It recently tapped local capital markets to close three multi-property financings in Finland, German, the Netherlands and Luxembourg for $279.2 million.
In Finland, the REIT entered into a loan agreement with Nordea Bank ABP and borrowed €74.0 million secured by mortgages on its five properties in Finland. At the closing of the loan, €57.4 million was used to repay all outstanding debt encumbering the five properties. In Germany, Global Net Lease entered into a loan agreement with Landesbank Hessen-Thüringen Girozentrale borrowing €51.5 million secured by mortgages on five of its properties in Germany. The net proceeds from the loan were used to repay all €35.6 million outstanding in mortgage indebtedness that previously encumbered the properties that secured the loan. In the Benelux region, the company entered into a loan agreement with Landesbank Hessen-Thüringen Girozentrale, borrowing €120 million secured by mortgages on three of its properties in the Netherlands and Luxembourg. At the closing, €80.3 million was used to repay all outstanding indebtedness encumbering two of the properties.