Increasingly, in this period of tight capital markets, corporate real estate users are monetizing their bricks and mortar through sale-leasebacks, and this trend should continue for the next couple of years. From the user’s point of view, there’s seldom any downside to such a transaction, and today—with so many investors looking to place capital and interest rates so low—it’s clearly a seller’s market.
Forget the old saw about the three rules of real estate. For sale-leasebacks, the key elements are credit, credit, and credit. So says Robert P. Johnson, founder and president of AEI Capital Corp. in St. Paul. “A retail leader like Best Buy knows where to locate its stores better than you or I do,” he says. “What the owner gets from a net-leased property is a contractual income stream; that’s why the tenant’s credit is so important.”
The dynamic works both ways; a seller that has good credit can achieve a higher price for its asset and lock in a low rent for 20 years or more. Jason Fox, managing director at New York City-based W.P. Carey & Co. LLC, says conditions are ripe for sellers. “Yields are coming down, and cap rates are down because there’s more capital in the market,” he relates. “But you can still get good returns, and this is a good time for a tenant to lock in a 15- to 20-year net lease.”
With asset pricing on the rise and cap rates near historic lows, these types of transactions will only grow...
...To read the rest of the story, go to the April 2011 issue of Real Estate Forum.
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