Originally published by Wealth Management The corporate sale-leaseback market is coming off a record-high first quarter for deal-making. Despite repricing occurring in the wake of rising debt costs, industry insiders remain optimistic of continued strong momentum ahead in the remainder of the year.  The $8.4 billion in sales logged in first quarter is on par with fourth quarter 2021 activity and nearly triple the $2.9 billion in transactions recorded in the first quarter of 2021, according to a market analysis by SLB Capital Advisors. “That is the biggest first quarter that we’ve seen. The dollar volume was driven largely by two casino deals, but the 186 is the highest count that we’ve seen over the last few years by a good 20 to 30,” says Scott Merkle, managing director of SLB Capital Advisors.  The casino transactions included VICI’s acquisition of the Venetian Resort, Expo and Convention Center for $4 billion and GLPI’s acquisition of two Cordish Companies’ Live! properties for $674 million. Merkle also attributes activity to the huge volume of M&A activity that occurred in 2021.  Traditionally, companies use sale-leasebacks as a financing tool to monetize or “unlock” 100 percent of the equity tied up in real estate. That capital is often used to reinvest back into the business, improve balance sheets or finance expansion. Another catalyst for sale-leasebacks is M&A activity, with the acquiring entity using a sale-leaseback on the real estate of the business they are buying to help finance the acquisition. According to BMO Capital Markets, the U.S. saw 478 M&A transactions last year that were valued at nearly $1.9 trillion.  “A lot of times what we see on the M&A side is groups that will utilize that sale-leaseback as part of the capital stack, and there was an incredible amount of M&A activity last year,” says Jeff Tracy, a director at the Stan Johnson Co. in Tulsa, Okla. A sale-leaseback of the real estate can bring in 20 to 30 percent of the overall capital stack needed, which helps to reduce the amount of equity and/or debt a buyer needs to bring to the table, he adds.  Some industry experts estimate that industrial assets represent nearly half of all corporate sale-leaseback transactions, and expansion of the industrial sector over the past few years has provided fresh inventory for eager buyers. “Our business has never been more brisk. We are seeing a lot of activity as corporate users continue to look to monetize their industrial real estate and corporate-owned facilities, because they realize it’s a better use of funds to be able to put that capital to work within their business,” says Erik Foster, a principal and head of industrial capital markets, Capital Markets at Avison Young in Chicago.  Market adjusts to higher rates  The broader market is adjusting to higher costs of debt financing for real estate, which has climbed 150 to 250+ basis points since January 1. Although sources agree that rising interest rates haven’t changed the volume of sale-leaseback deals that are getting done, it is resulting in price adjustments and fewer bidders. “As debt has gotten more expensive, buildings can’t sell as aggressively as they did a couple of months ago,” notes Foster.  On average, cap rates have increased between 25 and 75 basis points, depending on the building, location, tenant and term. “The better locations and better credits are going to be less impacted, because there is a significant amount of capital still out there that is chasing deals,” says Tracy. The smaller or more challenging credits and tertiary locations are seeing bigger moves in cap rates, he adds.  Although there is still significant capital targeting sale-leasebacks, the bidder pool has thinned with some investors that have pushed pause amid the repricing that is occurring. Instead of getting 10 offers, a sale-leaseback listing might get six or seven now, because buyers are being more cautious, notes Merkle. SLB Capital Advisors is currently working on a sale-leaseback of an industrial portfolio valued between $75 million and $100 million. First round offers came in during the first week of April with nine groups that advanced. Typically, buyers increase their offers when moving to the second round. However, due to the rise in interest rates, many moved in the opposite direction, lowering their price. The deal is under LOI and moving forward, but the pullback on bidding speaks to how buyers are moving more cautiously, notes Merkle.  Stan Johnson Co. is working on the sale-leaseback of a portfolio of properties for a recreational vehicle business. One of the bids received was structured with a floating cap rate. The bidder included a cap rate range that allowed the seller to choose the rent level they wanted to set, as well as a fixed basis point spread over treasury to account for rate fluctuations.  So, depending on how rates moved prior to the deal closing, the cap rate also could move. “That is something I haven’t seen before, and I think it points to the fact that groups still have a desire to get deals done and they need to deploy capital. But they’re trying to be creative as possible in not only making sure they are competitive, but also protecting themselves from a downside scenario of a big interest rate move,” says Tracy.   Avid buyer interest  Rising interest rates could cool what has been a white-hot seller’s market for sale-leasebacks over the past year. However, industry participants are still optimistic about the near-term outlook. “While cap rates have risen, real estate is still at incredibly attractive levels for owner-operators to monetize their real estate in a sale-leaseback,” says Merkle. When one looks at sale-leaseback from a multiple perspective, multiples on real estate that might have been 15x are now 14x. Those numbers are really compelling for a business to execute a sale-leaseback when their business is worth multiples of say 8-10x, he adds.  SLB Capital Advisors has seen an uptick in pitch activity, inquiries from companies considering a sale-leaseback on assets, in recent weeks. “So, in spite of the pricing environment shifting rapidly over the past 45 days, we’re still in an environment where there is a ton of activity, and I expect to see a lot of continued sale-leaseback activity through the balance of the year,” says Merkle.  Another reason for that optimism is that there is still a significant amount of investor capital aimed at sale-leasebacks. “The buyer pools are more diverse and deeper than I have ever seen in my career, and that continues to put pressure on pricing and provides owners with great liquidity options,” notes Foster.  W.P. Carey Inc. alone recently announced that it had entered into $400 million in new investment agreements since the end of first quarter. The net lease REIT specializes in corporate sale-leasebacks, build-to-suits and the acquisition of single-tenant net lease properties.  In addition, more investors have entered the sale-leaseback market looking to acquire assets. “There has been a huge wall of capital looking to be deployed into sale-leasebacks. We’ve seen even more buyers step up to the plate over the last 12 months or so,” says Merkle. Some buyers are moving more cautiously, but there is still a lot of capital available for sale-leasebacks, he adds.   

Stan Johnson Company, one of commercial real estate’s leading investment sales brokerage firms, has completed the sale of six freestanding retail buildings across several states in the southwest and Georgia. The properties are leased to Family Dollar and Dollar General. In four separate transactions, Evan Altemus of Stan Johnson Company represented the seller, a Texas-based individual investor. The assets were acquired by three separate investor groups all based in Texas, including two private buyers and an institutional investor. The properties traded for a combined $6.3 million.  “These transactions were part of a larger investment strategy for the seller,” said Altemus, Associate Director in Stan Johnson Company’s Dallas, Texas office. “Their comfort lies in the single-tenant industrial sector and given our breadth and expertise across all asset types, the seller asked us to help them execute their strategy of exiting the retail market and transitioning to more industrial-focused properties. We were able to bring qualified buyers to the table, providing them with critical boots-on-the-ground information in order to enhance their understanding of each out-of-state market.”  Each dollar store was built or remodeled between 2005 and 2018, and the tenants operate on double net leases at all locations.  “Cap rates on these properties were comparatively high due to the short-term, double net leases, and because of the corporate credit and the ability to increase the value over time, these deals brought interest from yield-chasing investors historically focused on the multi-tenant retail sector,” added Altemus. 

Stan Johnson Company, one of commercial real estate’s leading investment sales brokerage firms, has completed the sale of two Fresh Thyme Market grocery stores in suburban Indianapolis, Indiana. Located at 11481 East 116th Street in Fishers, Indiana and 3400 East 146th Street in Carmel, Indiana, the freestanding properties are approximately 28,600 square feet each. The seller was a Chicago, Illinois-based private equity fund, and the buyer was a private equity fund with headquarters in Mexico City. Together, the assets traded for approximately $18.7 million. Mark Lovering of Stan Johnson Company represented both parties in the transaction. “Due to the extensive reach of our net lease marketing platform, we were able to sell these assets to a repeat international buyer before ever having to market broadly,” said Lovering, Associate Director in Stan Johnson Company’s Chicago, Illinois office. “Investment demand for grocery assets remains at an all-time high, and inflationary pressures are likely to further insulate the underlying values over the investment horizon.” Fresh Thyme Market is a specialty grocer with more than 70 locations across the Midwest. The tenants operate on long-term net leases at both locations, and both stores draw consumers from outstanding demographics and growing populations across the north and northeast suburbs of Indianapolis. “Both locations were encumbered by separate CMBS loans, which added several layers of challenges to get these deals completed,” added Lovering. “A lot of credit goes to the buyer and seller. They were both highly organized and remained steadfast throughout a lengthy negotiation process with the special servicers and CCRs.”

Stan Johnson Company, one of commercial real estate’s leading investment sales brokerage firms, has completed the sale leaseback of a two-location portfolio occupied by Oryx Oilfield Services. The facilities are located at 900 East Highway 11 in Kermit, Texas and 922 Farm to Market 81 in Goliad, Texas. Together, the transaction included 13 buildings totaling more than 118,000 square feet. Stan Johnson Company’s John Rotunno represented the tenant, who executed a long-term lease at the time of sale. The portfolio was acquired for an undisclosed price by Real Capital Solutions, a private equity group based in Colorado. “The impact of COVID-19 on sectors outside of non-essential retail was substantial in some cases, and Oryx’s oil field service business faced challenges including a decline in revenue,” said Rotunno, Associate Director in Stan Johnson Company’s New York office. “By executing a sale leaseback of their real estate, Oryx can now consolidate debt and focus company resources on the business’s future growth, providing critical working capital.” With roots in the oil and gas industry, Oryx has a solid history of service to key customers, providing facility maintenance and construction, pipeline construction and fabrication facilities for facility components. The portfolio properties serve as mission critical locations for Oryx’s service operations, and the properties feature office and warehouse space, manufacturing and fabrication facilities, as well as an abundance of fenced acreage totaling approximately 95 acres.

Stan Johnson Company, one of commercial real estate’s leading investment sales brokerage firms, has completed the sale of a single-tenant property portfolio triple net leased to The Learning Experience (TLE). Brandon Duff and Matt Spangenberg of Stan Johnson Company exclusively marketed the portfolio on behalf of the Chicago, Illinois and Atlanta, Georgia-based seller. Milo Spector of Stan Johnson Company represented the purchaser, a San Francisco, California-based 1031 exchange buyer, who paid approximately $9.83 million. This transaction represents the sixth and seventh unique TLE properties sold by the firm in the past 10 months. “We have been aggressively focused on the early childhood education space for some time and been particularly successful driving transactional velocity with a growing concept like TLE,” said Brandon Duff, Managing Director and Partner in Stan Johnson Company’s Chicago, Illinois office. “The buyer pool continues to grow significantly for this niche property type, evidenced by multiple offers we have received from various buyer profiles on each early childhood education property offering that we have completed.” “The limited corporate guaranty structure that TLE employs in its leases has historically been a challenge to overcome,” added Matt Spangenberg, Associate Director, also in Stan Johnson Company’s Chicago office. “However, we have been successful in explaining to investors the unique dynamic between TLE corporate and its franchisees, which incentivizes TLE to keep locations open regardless of its limited financial exposure. This, combined with educating investors on the value drivers of each specific property and bringing them up to speed on the early childhood education industry, has helped us drive significant value in the sale of these properties.” Situated in the affluent Milwaukee, Wisconsin suburbs of New Berlin and Menomonee Falls, the locations were built in 2020 and represent two of the first three TLEs built in the state. Both locations are operated by one of the most successful franchisees in the TLE system and represent TLE’s aggressive push into Wisconsin as part of its ongoing expansion to more than 450 locations across the U.S. “The buyer was an all-cash, 1031 exchange investor and repeat client of ours. We performed a national search for their replacement property, and they were attracted to these TLE properties due to the long-term leases, triple net structure, new construction and insight on the franchisee operating each of these TLE locations,” said Milo Spector, Director in Stan Johnson Company’s Walnut Creek, California office, who has a deep track record in the early education sector. “This is another excellent example of the internal network we have at Stan Johnson Company and the collaborative platform adding value to both a seller and buyer in a transaction. This is particularly the case with our already established presence in the early childhood education space, as we have existing relationships with the most active investors for this property type, combined with our real-time tracking of new active participants as well as private 1031 exchange buyers looking for these acquisitions nationwide.”

Stan Johnson Company, one of commercial real estate’s leading investment sales brokerage firms, has completed three portfolio sale transactions for a combined $75.5 million. The portfolios were comprised of single-tenant assets leased primarily to discount retailers. Tenants included Tractor Supply Company, Dollar General and Advance Auto Parts, among others. Ryan Butler of Stan Johnson Company arranged the off-market transactions on behalf of ownership. “All three portfolios had weighted average lease terms in excess of eight years and offered a very attractive mix of retail tenants,” said Butler, Managing Director and Partner in Stan Johnson Company’s Tulsa, Oklahoma headquarters. “We worked diligently to evaluate the buyers for each transaction and executed a series of off-market campaigns that resulted in a competitive environment and strong pricing. We successfully closed with three different institutional investor groups who were each pleased to add these high-quality, high-performing properties to their existing portfolios.” In total, the three transactions included 40 properties which were located across seven states.

Stan Johnson Company, one of commercial real estate’s leading investment sales brokerage firms, has completed the sale of a 10-building quick service restaurant portfolio fully leased to Taco Bueno. The portfolio totaled 25,643 square feet, and the properties were located across Oklahoma and Texas. The seller, U.S. Realty Advisors LLC, was a private equity group based in New York. They were represented by Josh Pardue of Stan Johnson Company. The buyer was Centric Capital Partners, a Dallas, Texas-based developer. The portfolio traded for $13.7 million reflecting a 7.22 percent cap rate. “This transaction had a few nuances – explaining the transition from bankruptcy to new ownership, working through a restaurant sale during the pandemic, as well as understanding how to effectively market small cap credits to achieve top pricing,” said Pardue, Senior Director in Stan Johnson Company’s New York office. “The tenancy was recently acquired by a leading operator, Sun Holdings Inc., which was attractive to the buyer. With drive-thru properties being in demand, not to mention the largely Texas-based locations, we saw strong interest from institutions, regional buyers, and private investors alike.” Sun Holdings Inc. acquired Taco Bueno in 2019 to revitalize and grow the brand, and with over 23 years of restaurant experience, the company has built an expansive franchise network with 11 brands across 800 locations and 12 states.

Stan Johnson Company, one of commercial real estate’s leading investment sales brokerage firms, has completed the sale of a 12-property portfolio of single-tenant retail buildings located across 10 states. The 187,884-square-foot portfolio included properties ranging from 4,000 square feet to 26,000 square feet and included five distinct tenant brands in the aftermarket auto parts, eye care and pet supply sectors, among others. Stan Johnson Company’s Zach Harris, Jeff Hughes and Melissa McKenzie represented the seller, a Midwest-based private family office. A joint venture between affiliates of MCB Real Estate, a Maryland-based real estate investment firm, and Blue Vista Capital Management, a Chicago-based real estate investment manager, purchased the portfolio for approximately $28.5 million. Mike Sladich and Maggie Holmes of Stan Johnson Company represented the buyer. The cap rate was not disclosed. “This net lease portfolio consisted of a strong diversification of name-brand essential retail tenant credits which was quite attractive to the buyer,” said Harris, Director in Stan Johnson Company’s Tulsa, Oklahoma headquarters. “We continue to see particularly robust investor demand for these diversified single-tenant retail portfolios featuring established locations and strong credit tenants.” In recent months, Harris brokered the $68.4 million sale of a 27-property portfolio of single-tenant retail buildings across 18 states that also received strong interest from investors.

Stan Johnson Company, one of commercial real estate’s leading investment sales brokerage firms, has announced the sale of a zero cash flow portfolio fully leased to CVS Pharmacy. The four-building, four-state portfolio of retail drugstores totaled more than 56,000 square feet and sold to a private 1031 exchange investor for approximately $19.2 million. Stan Johnson Company’s Josh Pardue and Zach Pool represented the seller, a leading New York City developer. “We are pleased to have completed a challenging, cross-border CVS portfolio transaction between our New York-based client and an investment fund from Mexico that has deployed significant capital into the net lease sector in recent years,” said Pardue, Senior Director in Stan Johnson Company’s New York City office. “With zero cash flow transactions, the motivations are different than the drivers of traditional net lease transactions. In these transactions, the buyer’s investment focus is typically on wealth preservation and tax strategy, while the seller is traditionally focused on high-yield development, seeking to roll the equity into income-producing real estate.” The properties were built between 2011 and 2013 with absolute triple net leases in place. The assets featured non-recourse, zero cash flow structured financing that was readily assumable. The following properties were included in the sale: 12751 Nicollet Avenue, Burnsville, MN 400 South Truman Boulevard, Crystal City, MO 101 East Hall of Fame Avenue, Stillwater, OK 2115 Union Avenue, Memphis, TN “We structured this transaction with a longer contract to allow the seller to secure a quality South Florida multifamily investment property to exchange into,” Pardue added. “We’re pleased to have navigated the nuances between each drastically different investor, accommodating the requirements of all parties and successfully closing on this transaction.”

Stan Johnson Company, one of commercial real estate’s leading investment sales brokerage firms, has completed the sale of a 27-property portfolio of single-tenant retail buildings located across 18 states. The 340,000-square-foot portfolio included properties ranging from 5,100 square feet to 23,500 square feet and included 11 distinct tenant brands spanning a wide range of retail segments, including dollar stores and discount retailers, automotive suppliers and servicers, farm stores and home improvement retailers. Stan Johnson Company’s Zach Harris, Jeff Hughes and Melissa McKenzie represented the seller, a Midwest-based private family office. An institutional investor purchased the portfolio for $68.4 million. The cap rate was not disclosed. “We received a strong level of interest in this diversified net lease portfolio from a number of very qualified groups,” said Harris, Director in Stan Johnson Company’s Tulsa, Oklahoma headquarters. “The buyer that was ultimately selected was able to move quickly and work towards a successful year-end closing, which was a win-win for all parties involved. We continue to see demand in the net lease marketplace for established properties leased to essential retail tenants.”  

Stan Johnson Company, one of commercial real estate’s leading investment sales brokerage firms, has completed the sale of an eight-building industrial portfolio across four states. Located in the Southeast and Texas, the portfolio totals more than 200,000 square feet on 70.5 acres. Stan Johnson Company’s Brad Pepin and Jeff Tracy represented the seller who executed long-term, absolute triple net leases at closing. Also representing the seller with legal and other advisory services were Tom Gates and David Maynard of Mirador Real Estate Advisors. The buyer was a New York-based institutional investor. They acquired the sale leaseback portfolio for $28.0 million, although the cap rate was not disclosed. “This sale leaseback transaction brought together a very successful and leading national heavy equipment owner/operator and a proven institutional real estate buyer that will be a great landlord and owner for many years to come,” said Pepin, Senior Director and Partner in Stan Johnson Company’s Tulsa, Oklahoma headquarters. “Stan Johnson Company is very proud of the sale leaseback results achieved during this difficult pandemic environment. We’re excited to have met the expectations of our valued seller and client in this transaction.” The portfolio encompasses eight distribution buildings and service facilities, including one newly built property that features a combination of industrial and office space and serves as the tenant’s headquarters.  

Stan Johnson Company, one of commercial real estate’s leading investment sales brokerage firms, has completed the sale of a portfolio of industrial logistics properties located across four strategic supply chain markets. Together, the properties total approximately 1.9 million square feet and are leased to a diverse mix of public and private, industry-leading tenants. Stan Johnson Company’s Mollie Alteri, Joey Odom, Mike Sladich, Maggie Holmes and Michael Watson represented the seller, an institutional advisor based in New York. An institutional investor based in Dallas, Texas, acquired the portfolio. The price and cap rate were undisclosed. “The industrial sector features a unique ability to serve today’s rapidly changing environment, and investor appetite for net lease oriented industrial assets continues to be at an all-time high,” said Alteri, Associate Director in Stan Johnson Company’s Atlanta, Georgia office. “Both transaction teams performed exceptionally well despite overall market volatility, and we were pleased to see the transaction come to a close.” The entire portfolio encompasses 141 acres, and the buildings range in age, with the newest facility constructed in 2005 and two other properties being renovated in 2020. The four-building portfolio includes the following assets: 2001 Commerce Parkway, Franklin, Indiana 524 North Sara Road, Yukon, Oklahoma 565 Corporate Woods Drive, Bridgeton, Missouri 56878 Kelly Avenue, Morrow, Georgia