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.
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. The U.S. saw 478 M&A transactions last year that were valued at nearly $1.9 trillion.
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.
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.
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.”
Read the full article by Beth Mattson-Teig @ WealthManagement.com