“Companies
are more in
need of capital
than ever, so
suddenly the
sale-leaseback
becomes more
relevant.”
STEPHEN F. OLSEN
PRESCOTT GNLP CAPITAL LLC
has already picked up a bit and we’re
seeing more sale-leaseback offerings. As
it becomes harder to borrow, corporations sitting on real estate will start to see
those properties as a source of money
they’re not utilizing, so sale-leasebacks
become a more attractive option.”
Despite the shifting lending climate,
companies will continue to grow and/or
need new facilities, says Olsen. While
the New Year “is going to be horrible
for the economy, it will be good for my
business,” the executive relates.
“Companies are in need of capital more
than ever, so suddenly the sale-leaseback becomes more relevant.”
DuGan agrees that with affordable
financing more difficult for corporations to come by, they will divest their
real estate. And the sale-leaseback, he
says, will continue to be an important
means of financing M&As and private
equity transactions. “As money gets
tight, the sale-leaseback gets more popular,” says DuGan. “We expect conditions to be very good because mortgage financing is harder to get,
especially in Europe.”
This could also signal the return of a
buyer’s market. In recent years, the
ample capital competing for sale-leaseback deals has given corporate sellers
the upper hand. They were not only
able to command top dollar for their
properties, but also terms that have
been very much in their favor, such as
shorter initial lease lengths, partial
leasebacks and the like.
Olsen, for one, believes that, moving forward, buyers will have more
power in dictating terms and that there
will be a return to negotiated, rather
than marketed or auctioned, deals.
“We’re going to be looking at a completely different pricing matrix,” he
maintains.
Even so, corporations will be in a
fairly good position since there is still
plenty of equity capital chasing assets.
“I don’t think we’re going to see a
return to the early ’90s. My take is that
the market is going to be very efficient,”
says DuGan. “There is a lot of capital
still available for sale-leasebacks. It’s
going to be less seller-driven in the
future, but I don’t think the pendulum is
going to swing very far to the buyers.”
When it comes to properties occupied by retail tenants, Macnab expects
the number of sales and buying opportunities to be strong this year. “The
demands of retailers are always a challenge. In an environment where
there’s less capital available, the playing field is more level,” he says. “The
core attributes and merits of net lease
transactions haven’t changed, namely
the capital efficiency of using third parties to finance real estate for growing
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“It seems that
volume has
already picked
up a bit and
we’re seeing
more sale-leaseback
offerings.”
JEFFREY S. THOMAS
CB RICHARD ELLIS GROUP INC.
retailers, is now back in vogue.”
All said, the debt markets may prove
to influence the sale-leaseback sector in
more ways than one. MacDonald of Net
Lease Capital Advisors says lenders are
now insisting on such things as bigger
reserves and greater debt service coverage ratios as well as longer lease terms.
He sees lenders wanting a 15-year lease
for a 10-year loan term, for example, so
that there is a period of the lease still in
place after a loan matures. So for a seller
to get the pricing it wants, a buyer to get
the kind of pricing it needs and for a
lender to get comfortable with a deal, a
trend toward longer-term leases could
result. “There’s potentially a push in the
marketplace toward longer terms,” says
