Starwood Property Trust has reached a definitive agreement to acquire Fundamental Income Properties, a net lease platform currently owned by Brookfield Asset Management, in a transaction valued at approximately $2.2 billion. The deal, announced Wednesday, marks one of the year’s most significant real estate acquisitions and signals a continued expansion for the real estate investment trust into the net lease market.
The acquisition gives Starwood ownership of a vast portfolio: 467 properties spanning 12 million square feet, distributed across 44 states. The tenant base encompasses 56 industries and 92 corporate tenants, resulting in a highly diversified portfolio. According to Starwood, the assets feature a 17-year weighted average lease term and include annual rent escalations averaging 2.2%.
Barry Sternlicht, chairman and CEO of Starwood Property Trust, called the move a logical step in the company’s broader growth strategy. “With the addition of another business cylinder, we are expanding into another proven, scalable segment with strong synergies with our platform. Our core commercial real estate lending business is now approximately half of our asset base as we have strategically expanded into complementary lending and investing verticals,” Sternlicht said in a statement. “The acquisition of Fundamental marks the next evolution, but not the last, of our platform”.
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Fundamental Income Properties was founded in 2019 and experienced rapid growth following a $500 million equity commitment from Brookfield. Its first major deal came in September 2020 with a $50 million purchase of a Carvana facility in Tolleson, Arizona. The company has since acquired a diverse range of real estate assets, including a $44.7 million property on Chicago's Gold Coast and multiple properties in Nashville's Lower Broadway district. The platform specializes in structuring net lease investments, allowing tenants to pay for property operating expenses in addition to their rent. According to the company, the portfolio is 100% occupied and has experienced no credit losses since inception.
Starwood plans to finance the acquisition through a mix of cash, debt, and equity capital. The company will assume Fundamental's existing financing facilities, totaling $1.3 billion, which includes $900 million of asset-backed security debt. In addition, Starwood has initiated a public offering of 25.5 million shares, with the intention of using the proceeds to fund a portion of the purchase price.
“With nearly 20-year leases, annual rent escalators, and access to attractive proven [asset-backed securities] financing, the transaction highlights our safety focus,” said Starwood President Jeffrey DiModica. He added, “We anticipate this investment to be accretive to distributable earnings after giving effect to projected refinancing of existing debt and projected acquisition volume, and the impact of this accretion will grow as we deploy more capital at our targeted yields."
Brookfield’s Lowell Baron described the transaction as the result of a partnership that scaled the platform in just five years. “In just five years, we partnered with the Fundamental Income team to found and grow a scaled, high-quality net lease business—featuring a diversified portfolio, vertically integrated platform, and exceptional leadership,” Baron told the Commercial Observer. “With this sale, we’ve seized the right moment to realize our investment.”
The acquisition is expected to close on or around July 23. Bank of America’s BofA Securities advised Starwood during the negotiations, while Wells Fargo and Evercore represented Brookfield. Both BofA and Evercore declined to comment on the deal.
The move comes as the net lease market sees increased activity among institutional investors. Earlier in July, BlackRock announced a separate agreement to acquire ElmTree Funds, a firm specializing in leasing single-tenant commercial properties. That deal will bring ElmTree’s $7.3 billion portfolio under BlackRock’s management, further fueling diversification in the private markets sector.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
