NEW YORK CITY-Much like other portions of the net lease sector the sale-leaseback market is showing no signs of slowing down. Players in that space spoke of ample opportunity—and how they approach those opportunities—during the RealShare Net Lease conference—organized by the ALM Real Estate Media Group—held Tuesday at the Convene conference center in midtown Manhattan. Nearly 300 industry professionals were in attendance.

Meanwhile, two corporate real estate experts spoke of the need to frequently do deals, and the pros and cons of diferent deal types, at the event.

“I keep hearing that there's too much money chasing deals and that there are too many players,” said Michael Rotchford, EVP and head of corporate finance and investment banking, Cushman & Wakefield Securities Inc. “That tells me that there's still opportunity.”

Added Stephen Olsen, managing director, GNLP Partners, “There's consolidation going on, and foreign investors are coming in which could crowd the market further, but demand is picking up.” Sometimes that demand comes from a redetermination of assets, noted David Ledy, COO and partner, dispositions, U.S. Realty Advisors. “We look at every asset, every week, to see where it is against the marketplace and evaluate if it's a good time to sell ahead of schedule.”

In the world of corporate real estate, there's an ongoing need to do deals. “Every year we do a facilities survey and then we meet with all the vice presidents in charge of the various facilities and we develop a plan for the year, though these are three-year rolling plans,” says Rick Frazier, director of real estate, facilities corporate real estate at Kaman Industrial Technologies Corp. until two weeks ago. “We typically don't like to own real estate,” he continued, implying that the company—and maybe similar end-users—are often looking to lease space or dump assets.

Added Richard Sahakian, SVP, real estate transaction management, T.D. Bank, “Weare basically growing bank and acquiring space as necessary.” Then he revealed information that likely was welcome news to brokers. “We haven't been much of a player in lease-backs, we prefer to own. I may be of interest to you as a future owner.”

The way in which execution of deals takes place can vary widely. “We see the role of individual investors continuing, but it's all about having multiple sources of capital,” said Chad Edmonson, executive director, W.P. Carey. But Ledy is relying more on institutions. “Institutions are looking for cash; we look for good quality deals with 10-12 IRRs and we spend a lot of time on exit strategy.”

Added Fort Parker, VP, Angelo, Gordon & Co., “We're set up to do sub-investment grade deals so from a pricing perspective, we do deals with low teen targets to high, depending on the IRRs and mix of credit.”

Some deals are coming from past errors, noted Ledy. “We had a situation where the deal was leveraged to 90% with two years left on deal and they couldn't refinance. We were able to put in capital to entice the tenant to stay,” he said. “There are complications that create opportunities.”

Corporations seem to be agnostic when it comes to deal type. “On the retail side of our house, we do ground leases a lot,” said Sahakian. “We typically are opening 36-40 stores a year, ground is our preferered lease type.” Triple net lease is appealing too, with a few term tweaks, he says. “I think it's fair enough for a landlord, on a triple net lease, to expect us to cover expenses,” admitted Sahakian. “But in a primary city, we'd expect the landlord to shoulder those costs.”

Added Frazier, “If we're going to sign a five-, seven- or even 10-year deal, at below market rate, I would expect things like the air conditioning to have a 10-year life and for all those mechanical costs to be included in the deal. We want to know what our costs are going to be going forward, we don't want to be surprised,” he said. “Otherwise charges can add up to beyond the net rent.”

Instant Insights /

Sale Leaseback Is Growing While Corporate RE Presents Many Options

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