Potential Blockbuster: Sale of SandRidge building could be top 10 deal
OKLAHOMA CITY – SandRidge Energy Inc.’s corporate headquarters sale-and lease proposal will rank among the top 10 deals in the nation if it goes through, said Daniel Herrold, senior director of Stan Johnson Co.
The driller wants to sell its four downtown buildings and lease its corporate headquarters and parking garage, becoming a tenant to a potential buyer, said broker Mark Beffort, CEO of Newmark Grubb Levy Strange Beffort.
The price could exceed $100 million, said Herrold, whose Tulsa-based firm provides leasing advisory services nationwide. The unfinished Parkside Building is unoccupied and could relieve pressure on the downtown real estate market, providing Class A space, said Tre Dupuy, office adviser at Price Edwards and Co. However, SandRidge’s credit rating could scare off potential buyers, he said.
The plan is known as a sale-leaseback transaction, and it is a common way to raise money or reinvest in one’s business, Herrold said. He recently wrote a white paper, “Sale Leaseback: An Alternative Means for Raising Capital,” about the global phenomenon.
These transactions are on the rise in the real estate market because the economy is growing and there isn’t much new supply, according to his analysis. Sale leaseback activity jumped from more than $4 billion in 2012 to $12 billion the following year. Transactions fell in 2014 to $10 billion, but are expected to reach $12 billion again in 2015, according to Herrold’s analysis.
Verizon completed a $650 million sale leaseback transaction for its corporate headquarters this year. If SandRidge’s deal goes through, it will be among the top five single-location-asset sales nationwide, Herrold said.
SandRidge executives approached Beffort about six months ago to discuss the value of its real estate assets, he said. SandRidge CEO and President James Bennett told analysts the company is looking to sell assets and pay down debt. The driller had about $3 billion in debt at the end of the first quarter, and in May issued $1.5 billion in preferred bonds.
The driller would like to sell its four buildings to a single buyer, but is willing to look at offers to purchase them separately, he said. SandRidge would keep control and management of its corporate headquarters and parking garage, so employees would see no change, Beffort said.
Dupuy said he commends SandRidge for its work to invest in the city block where it is located, including constructing a new park and construction of the Parkside Building. The tower could relieve pressure on the downtown real estate market, where Class A space is in high demand and there isn’t much supply.
Yet Parkside’s space could garner an estimated at $30 per square foot, higher than similar space nearby, Dupuy said. Leadership Square space was priced at $18.50 per square foot in 2012 and now has risen to $24 per square foot.
“It is a nice, new, shiny building, so you would expect at least $30 per square foot, but investors will have to test that market,” he said.
Herrold said the SandRidge buildings are likely to attract potential investors from larger markets, including New York and Los Angeles, but he wouldn’t rule out international buyers from the Middle East. Beffort said he hasn’t place a price on the properties and is interested in what people are willing to pay.
Sale-leaseback transactions can help companies raise money to solve a problem. In SandRidge’s case, it could help fund operations, Herrold said. The driller’s credit rating may make the deal a tough sell, he said. Standard & Poor’s Index downgraded the driller from B to CCC+ on March 15.
Potential buyers have to consider the risk of whether the 500,000-square-foot headquarters will remain occupied, Dupuy said.
“If I’m a buyer, I need to know if they have good credit and can fulfill the lease,” he said. “If I think SandRidge is OK and can hold up to its long-term lease commitment, then I feel secure in making more of a risk.”