Sales leasebacks are a core component of net lease — with some experts during a panel at our Net Lease Spring 2026 event debating the use of the transaction type in the industry.
The panel consisted of Joseph Marger, partner at Reed Smith LLP, Chris Capolongo, managing director and deputy portfolio manager at TPG Angelo Gordon, Gregory Nearpass, partner of Woods Oviatt Gilman LLP, Pat Crawley, director of acquisitions of Net Lease Capital, David Grazioli, president & managing partner at U.S. Realty Advisors LLC and Adam Scherr, managing director, at Sands Investment Group.
Capolongo takes us through why a sale-leaseback happens, noting that it starts with credit underwriting.
"The reason why the phone rings is that they want capital," he said.
"A lot of times that means that they're either looking to recap their balance sheet or they're looking to do a transaction."
When Crawley gets a call, the first thing he takes a look at is the client's credit; if that turns out just fine, he evaluates the type of real estate in question and the strategy.
And sometimes a sale-leaseback deal can become nuanced, with him citing an example: "If they say they are in office, and they're going to consolidate to an office, the real estate does come into a certain aspect of it. Except they just say, they're distressed, but their credit is still okay. But that might be changed in the future, then I have to think about it."
Nearpass spoke on it from an attorney's perspective, noting that landlords under sale leasebacks are protected with net income covenants, requiring tenants to generate a sufficient amount of profit.
"It's preserving the sale leaseback structure and how that interplays with the credit profile; [it's more of an] emphasis than just a traditional acquisition," he said.
Exit Strategy Debate
As explained before, the thinking behind a sale leaseback in many cases is to beef up balance sheets. But Nearpass brought up that the move represents a "potential exit strategy," rather than wanting to stay at their properties forever.
"If that weren't the case, then change of control wouldn't be the number one negotiated provision in a net lease," he emphasized.
"It's the prenuptial provision in the net lease. How can we unwind this deal with limitations, recourse and liabilities?"
However, Grazioli disagreed with that notion and noted that generally, sale-leasebacks aren't done with an exit strategy in mind.
"Tenants wouldn't negotiate for long-term renewals and to control the property and sometimes operational control," he responded.
Additionally, Marger chimed in and looked at it from a buyer perspective, with potential appetite for redevelopment of the property coming into play. The questions he asked: "If I know they want to get out, what do I think the residual value of this property can be [if] repositioned? Where's the market going there?"
The Opportunity for DSTs Amid Volatility
With the interest rate volatility taking place, Scherr has seen some disruption in the net lease sector and it adds to the existing problems that the sector faces.
"You can see a bunch of sales leasebacks that were done in 2021 start to unravel," he warned.
"And higher construction costs mean higher rents and stores can't support the sales. That's really the core of it."
That said, other panelists, including Grazioli, who predicts net lease will see more transaction volume this year, are bullish.
Also, Crawley points to a strong appetite for Delaware Statutory Trust solutions in the net lease space. He thinks plenty of deals can be moved through DSTs.
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