W.P. Carey Exec: In an Uncertain Environment Sale Leasebacks Find Fertile Ground
Sellers know there is demand for their assets and, in turn, they want to be able monetize their real estate, says Andrés Dallal.
Earlier this year a food manufacturing company approached W.P Carey about a potential sale leaseback transaction with a laundry list of requirements: the deal needed to get done in a tight timeframe so it could reallocate capital back into its facility. It also required discretion as it didn’t want to blast its position out to the world, says Andrés Dallal, executive director, Investments, W.P. Carey, meaning it didn’t want to be perceived as being in the need for cash.
W.P. Carey closed the deal with little fanfare, meeting the customer’s requirements.
The REIT specializes in these structures so it is little surprise it was approached by the company—indeed, they had done business together before. Now, as the pandemic grinds on, more and more firms are discovering the advantages of sale leasebacks and seeking out buyers like W.P. Carey.
“The sellers know there is a market right now,” he tells GlobeSt.com in a video interview.
In many ways sale leasebacks are blank slates, Dallal says. “It is two parties getting together and giving each other a solution.” The seller is monetizing its real estate, while still occupying it, and deploying the capital to more urgent needs while the buyer is getting a risk-adjusted return, he explains.
“In an uncertain environment it gives you a recipe for success.”
Most important for most sellers is continuity, Dallal says and for these firms he offers some advice: One, you must have an absolute net lease. Two, you want a buyer that has a buy and hold model. Sellers find it concerning that in five years it might be possible that they have a new landlord, he explains. Another plus for these deals right now is that pricing has gotten a bit more certain than it was at the start of the pandemic and the bid-ask spread between buyer and seller has narrowed.
Dallal does add some caveats. The credits must be good and the real estate well located. For companies that don’t have a sustainable path forward or are located in tertiary markets, there is still a divide, he says.
“There has definitely been a flight to quality in this market.”