W.P. Carey Shares Net Lease Strategy

MIAMI—From the build-to-suit trend to the shifting demand in net lease, W.P. Carey is in the thick of the trends. Jason Fox, head of global investments at W. P. Carey, a global net lease REIT, has keen insights into the industry.

In part one of this exclusive interview, Fox discussed how the net lease market has changed, what investors are looking for and how the rising US dollar is impacting the market. In this segment, he dives into key trends, opportunities and challenges—and shares how his firm is navigating it all.

GlobeSt.com: I'm hearing wind of more build-to-suit in the net lease market? Are you seeing that as a bona fide trend? Any examples?

Fox: An area where build-to-suit is a growing trend is in Europe. We recently closed a $115 million build-to-suit transaction for the Rabobank headquarters in Eindhoven, Netherlands with Dutch developer OVG Group. The construction is estimated to be completed in the first quarter of 2017. 

We have also seen build-to-suit as a component of existing asset acquisitions. For example, in 2014 we acquired and then funded the expansion of a distribution center for Belk in Jonesville, South Carolina.    

GlobeSt.com: Will demand for net leased assets be this strong a year from now?

Fox: Even as interest rates start to increase we anticipate that demand for attractive risk-adjusted current yield will remain strong as both individual and institutional investors look for income generating investments. 

GlobeSt.com: Where do the biggest opportunities in the net lease sector lie in the quarters ahead?

Fox: The biggest opportunities for us lie with more complex transactions rather than the commoditized offerings that attract multiple investors and offer lower yields. Because of our credit underwriting capabilities we are able to do transactions with privately held companies and below grade credits where we see positive trends for their business and economic performance over time. In addition our international capabilities give us access to a wider and deeper pool of opportunities.   

GlobeSt.com: What challenges do you see for the net lease sector in the quarters ahead?

Fox: We expect a couple of factors to influence the sector in the quarters ahead and beyond. Although the Fed continues to manage the economy and interest rates, the consensus is that interest rates will begin to increase in the foreseeable future. Secondly, with anticipated economic growth and the trend of some manufacturing capabilities moving back to the US companies will have the need to expand and invest in new facilities. 

Consequently, we see the demand for sale-leasebacks driven by the desire of companies to lock in lower lease rates while interest rates remain low and also by their need to invest in new and expanded facilities. 

Another factor is growth in Europe where the monetary authorities have been taking steps to increase economic stimulus and  where, because sale-leaseback has not been as familiar a financing tool as it has been in the US, there is still a significant pent up supply of critical corporate real estate with the potential to generate sale-leaseback transactions in 2015.  As a global net lease investor active in the European market since 1998 and with the ability to raise public capital in Europe, we are well positioned to work with European companies as well as US companies with critical facilities located overseas.