NNN Lease Market News
RESTON, VA-Realty Income (NYSE: O), an Escondido, CA-based REIT, has acquired a 12-asset owner occupied industrial portfolio located across the US in a sale leaseback transaction, Calkain Cos., tells GlobeSt.com in an exclusive interview. The purchase price, value of the real estate portfolio and seller are not disclosed, Calkain’s EVP David Sobelman tells GlobeSt.com. “The size of the portfolio is 300,000-square feet but other than that, due to the confidentiality clause, there is little else we can disclose.”
That said, the transaction, between institutional investors, is a significant one - as well as illustrative of a growing trend Sobelman has noted: the use of sale leasebacks as a way for buyers of properties to monetize recent acquisitions as quickly as possible. “I would say this is definitely something we are seeing more and more of, especially among private equity firms,” he says.
This particular trade began as an acquisition by a private equity company based in the Southeast, of an environmental services company that owned and occupied 12 industrial facilities in eight states. “Because of its business model the private equity company did not want to keep the real estate,” Sobelman says. “Instead it realized that the real estate portfolio could pay back a significant portion of its initial investment through a sale leaseback transaction.”
A sale leaseback is very simple really. Sometimes known as a sale leaseback or sale and leaseback, it is a transaction wherein the owner of a property sells that property and then leases it back from the buyer. The purpose of the leaseback is to free up the original owner's capital while allowing the owner to retain possession and use of the property. The type of property involved can be anything from residential or commercial real estate to equipment or vehicles. A leaseback can be beneficial for the buyer and seller alike. The seller attains a lump sum of cash quickly and the buyer acquires a lower than market value purchase price, along with a long-term lease at a premium rate. The lease amount provides periodic income and may even be enough to pay the buyer's mortgage, if he or she borrowed money to obtain the property. A leaseback can be a great investment tool, one that yields a high return. As with any investment, however, there are associated risks.
The private equity company retained Calkain, which brokered the deal with Realty Income. “Because of the number of locations and their geographic distribution we knew that private investors would not be interested in a portfolio like this. It would have to be a REIT or another institutional investor,” Sobelman says.
