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When iHeartCommunications was looking for ways to cut its corporate overhead after a 2008 leveraged buyout of its predecessor, Clear Channel Communications, it turned to W. P. Carey Inc. to help with one drain on corporate cash needed for debt repayments.

In February, the global net lease REIT acquired iHeartCommunications' corporate center in San Antonio, TX, and leased it back to the broadcasting and outdoor advertising giant for 20 years. WPC paid about $22 million for the property, which iHeartCommunications uses mainly for its IT and finance departments.

“Corporations are realizing that real estate is not part of their core business and their investors are not investing in them to get real estate-like returns,” says Jason Fox, managing director with WPC. “They're looking for them to operate their core competencies, their operating businesses.”

Fox says WPC is not terribly concerned about exposure to credit risk because even though iHeart is working down a lot of leverage, the building is absolutely critical to the company's remote operation of more than 800 radio stations around the country. “The likelihood is that if they did get into trouble where they had to restructure, this is one of the first leases that they would affirm,” he says.

Companies cashing out of their owned real estate generally categorize the property into different buckets, says Fox. “One is those they view as highly critical, and those they would be willing to do long-term sale leasebacks on,” he says. “Because of the critical nature of the real estate they want to maintain full operational control.” Those buildings would generally be triple-net leased over a long term, he says.

“On the other end of the spectrum are those excess properties that they no longer need or perhaps they own the real estate and are no longer a tenant,” he says. Banks are often in this situation, and Fox cites JP Morgan as an example of a client that exited from a wide range of customer service and operations centers, and regional headquarters buildings it no longer needed.

AT&T and Verizon have also been doing substantial real estate sales, either of vacant buildings no longer needed, or properties they will lease back, Fox says. State Farm Insurance did a large sale-leaseback two years ago, he says. Now the company is doing a series of sale-leasebacks ranging from five to 15 years “depending on how important those properties are for their operations,” he says.

David Bernhaut, vice chairman of Cushman & Wakefield, says corporate retrenchment in the Northern New Jersey market has created a wide range of property sales. “The first is the sale of surplus corporate assets; the second is corporations repositioning and re-leasing assets prior to sale in an effort to create value; and the third is the traditional sale leaseback as a form of raising capital or off balance sheet financing,” he says. “As the investment market has continued to improve, corporate sellers are finding a ready market for these vacant or primarily vacant, value-add opportunities.”

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Bernhaut points to a number of transactions fitting these broad outlines. Alcatel-Lucent's 1.3 million-square-foot, 200-acre campus in Whippany, NJ was sold to a joint venture of Rubenstein Partners and Vision Real Estate Partners for mixed-use redevelopment; the sale of pharmaceutical giant Roche's two-million-square-foot, 116-acre campus in Clifton and Nutley, NJ; Merck's sale of the former Schering-Plough, 44-acre 500,000-square-foot manufacturing complex in Union, NJ to Russo Development for a mixed-use transit oriented development; and Sanofi-Aventis' sale of its former 110 acre, 1.2- million-square-foot R&D complex in Bridgewater to a joint venture of Advance Realty and CrossHarbor Capital Partners, also for mixed-use redevelopment.

“Clearly a trend that started a while back is adaptive re-use, change of the buildings into something that's more current,” says DTZ's Frank Truesdell. “There's no long-term affinity to own the real estate.”

Repurposing large corporate campuses also revitalizes many of the host communities that they are located in, Bernhaut says, but he points out that corporations are also using their real estate to accomplish larger objectives.

Freight carrier Maersk recently leased a 147,000-square-foot class A office building at 2 Giralda Farms in Madison, NJ to Merck prior to selling the property, Bernhaut relates. “This timing let Maersk gain the value created by signing the long-term net lease,” he says.

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As part of Bayer Corp.'s relocation to its new 670,000-square-foot North American HQ in Whippany, NJ, the firm monetized several surplus assets, including a 222,000-square-foot office complex in Montville and a 227,000-square-foot industrial complex in Wayne, NJ.

CBRE handled a sale-leaseback for Siemens in Woodbridge, NJ in which the electronics maker monetized its real estate while preserving its occupancy and restacking the building with open space instead of perimeter offices, says CBRE's Kevin Welsh. “It really revolved around the plan to restack the environment and change the space,” he says. “They had a very specific approach regarding furniture and collaboration, but they were smart, they took advantage of a very liquid capital market for that kind of transaction, which was a long-term net lease with an investment-grade credit.”

Historically low cap rate pricing for sale-leasebacks has moved many more companies into sale and leaseback transactions, says Bernhaut.

“We've been getting more inquiries,” says Michael Weiser, president of New York City-based GFI Realty Services. “When things were cheap, people would pay to own, but now most good companies can earn more through their main business and products than they can through the money they're saving in real estate. If values drop, I think you'll see that trend slow down.”

Recent examples of this included the 1.8-million-square-foot sale-leaseback of Bank of America's Hopewell, NJ campus for more than $350 million; Sharp Electronics Corp.'s $38-million sale to the Sitex Group of its Mahwah, NJ campus, which included a sale-leaseback of the firm's 147,000-square-foot headquarters office building along with a 350,000-square-foot industrial building and future development rights on 23 acres; and Reed Elsevier's partial sale-leaseback of its two-building, 177,000-square-foot office complex in New Providence.

“Companies are taking advantage of very strong investor demand for that income stream associated with the sale-leaseback,” says Mark Fitzgerald, High Real Estate Group. “It's just an opportune time to take that fixed investment off their balance sheet, convert it to cash and redeploy that cash as the economy continues to improve, to get an overall better return for their shareholders.”

Class A office space located in a CBD is extremely attractive to investors right now, Fitzgerald says. “We've seen cap rates drop precipitously for that asset class,” he says.

After the wrenching dislocations of companies and their workforces caused by the last recession, exiting the real estate is merely a recognition that the workplace has changed dramatically—and permanently.

“So many companies have down-sized, or right-sized, the operations are certainly more efficient than they used to be,” says Truesdell of DTZ. “Whether it be through hotelling or virtual workspace, the need for large amounts of square footage has certainly dissipated, so why have that carrying cost? Why not come out of that and monetize that asset?”

In many areas, suburban corporate properties are attractive development opportunities for multifamily investors, Truesdell says. “Multifamily is extremely popular from an investment perspective at this point, so while the markets are favorable they will dispose of it and let it be repurposed into something more attractive,” he says. ?