Last year W. P. Carey did $1.3 billion in net lease transactions and the REIT’s head of investments, Gino Sabatini, is the first to admit those deals were challenging. “There was a standoff between buyers and sellers over cap rates. It hasn’t yet broken but I think it is super close to breaking,” he tells GlobeSt.com.”Part of that is the interest rate environment, which has stabilized. There is not this constant fear of another rate hike when you do a deal and I think for that reason sellers and buyers are getting more comfortable.”
Partly for that reason, this year will be easier, Sabatini says and he is comfortable with the REIT’s transaction guidance of $1.5 billion to $2 billion for 2024, with the midpoint at $1.75 billion. About two-thirds of that will be in the US and one-third in Europe, where it has had a long-standing presence.
Sabatini will be one of the participants in GlobeSt.com’s net lease conference, being held in mid-April in New York City.
He does note that there have not been a lot of big sales leasebacks coming to market so far this year – a structure that dominated W. P. Carey’s transactions in 2023 – but he believes there will be a “nice volume of transactions” yet to come. “That is what we are hearing from brokers that specialize in this space,” he says.
As W. P. Carey plows through its deal flow, it is sticking to its established modus operandi in investment strategies. “Not much has changed, we are doing the same thing – investing in single tenant industrial warehouses and retail,” Sabatini says. There has been one change however: The REIT has been active in retail in Europe for many years but last year it expanded its focus on US retail, closing about $100 million worth of deals primarily in the entertainment – think bowling alleys – category and car washes. This year the company is considering expanding into convenience stores and restaurants, he says.
Its emphasis on mission critical real estate remains the same as well. “We find buildings that are extremely important to a company and its business – whatever that company needs to operate – and secure long-term net leases on those properties,” he says.
Despite the positive trends emerging this year, Sabatini does see challenges ahead. For starters, even though buyers and sellers are getting more comfortable with deals, “there hasn’t been a breakthrough where both sides are gung ho and clamoring to get deals done,” he says.
The impending wall of debitures is also a concern. “Mortgages will need to be refinanced and there is only so much capacity in the lending market. Lenders will pick and choose which transactions they want to do, and while that will impact certain segments more than others, it will affect the entire real estate business to a certain extent.”
Net Lease Spring
Held April 16-17 in NYC, Net Lease Spring will bring together hundreds of dealmakers from the nation’s top firms. This year’s program will feature 5.5 hours of face-to-face networking and over 5 hours of content focused on micro and macro trends for 2024, being resilient through market volatility, how to serve your corporate tenant clients and much more! Learn more or register here.