One of the 11 Penhall International properties purchased by CRIC Capital.

MacDonald of Net Lease Capital Advisors describes how he and his team are currently working on a $30-million S&P A+ office building that is build-to-suit, with a 26-year primary lease that includes a 12-month construction period.
        "This client is pleased because they are locking in a low rate today for a 26-year period," says MacDonald. "They are ensuring themselves of a lower occupancy cost for their facility for over two decades."
        MacDonald says Net Lease Capital Advisors is involved in a broad array of activities within the net lease arena, including acquisition, financing, and advisory work. The firm's acquisition arm, Net Lease Capital Investors, works closely with the advisory group, Net Lease Capital Advisors, in putting together sale/leaseback deals for strategic applications.

Real estate investment and advisory firms are fond of the sale/leaseback model because of the security involved. MacDonald explains that once a firm gets a long-term lease with a single tenant, it receives all the benefits of a corporate bond. "Income from an investment grade tenant over the length of a multi-year lease offers returns with reliability comparable to those of corporate bonds," MacDonald says. "Lengthy terms eliminate concern about tenant turnover normally associated with real estate ownership. In other words, a firm acquires real estate with a corporate guarantee."

iStar Financial, the leading publicly traded finance company focused on the commercial real estate industry, finalized a deal with Cendant Corp., a global provider of complementary consumer and business services, focusing primarily on travel and real estate services.

One of two headquarters buildings purchased from Cendant Corp. by iStar as part of a sale/leaseback transaction.

According to Dorsch, iStar purchased from Cendant two buildings totaling 484,000 sq. ft. (44,964 sq. m.) as the headquarters for their mortgage operations. Three months later, iStar completed another sale/leaseback deal of 212,000 sq. ft. (19,695 sq. m.) for the Avis and Budget rental car division of Cendant. As a corporate strategy, Cendant tends not to own real estate, Dorsch says.
        "Cendant chose iStar because of the certainty of execution – they knew we would be there at the closing table for them," Dorsch says. "As an off-balance-sheet, long-term owner of their properties, Cendant has the comfort of knowing that we will be their landlord for a long time."
        Dorsch says that iStar's net leased facilities are generally subject to long-term leases with rated and unrated corporate credit tenants, and provide for all expenses at the property to be paid by the tenant on a triple net lease basis. Corporate tenant transactions typically range in size from $15 million to $300 million.

In December 2003, New York, N.Y.-based Lexington Corporate Properties Trust – a real estate investment trust that owns and manages office, industrial, and retail properties net leased to major corporations throughout the United States and provides investment advisory and asset management services to investors in the net lease arena – acquired two properties from Employers Reinsurance Corporation (ERC) for approximately $79.3 million. At the closing, the properties were leased back to ERC for 15 years.
        "We believe the ERC properties are particularly attractive investments in view of the financial strength of the tenant, which has an A+ rating from S&P

An artist's rendering of the new Dick's Sporting Goods headquarters in Pittsburgh, due to open in July 2004.

and a Aa2 rating from Moody's, and the 15-year lease term," says Natasha Roberts, vice president of Lexington Corporate Properties Trust. "Our acquisition pipeline is strong. We have approximately $200 million of properties under contract or letter of intent to acquire in 2004."

In July 2004, a new 200,000-sq.-ft. (18,580-sq.-m.) office headquarters for Dick's Sporting Goods will open in Pittsburgh, Pa. Housing about 800 people, the four-story Class A office building is stocked with amenities such as a cafeteria, fitness center, racquetball court, and auditorium. Construction and permanent financing was provided by San Antonio, Texas-based USAA Real Estate Co.

Pat Duncan, senior vice president, real estate operations of USAA Real Estate Company

        Pat Duncan, senior vice president, real estate operations of USAA Real Estate Co., notes, "Our advantage over other firms is that we are a one-stop developer. We have our own equity, we do our own construction financing and our own permanent financing, and our clients enjoy that ease of execution. We can eliminate about three months out of the entire process."
        Duncan explains that Dick's Sporting Goods would rather take its capital and invest it in operations.
        "Dick's Sporting Goods is growing rapidly and it wants to expand across the United States so it can use capital from the sale of the headquarters to do that. Sale/ leaseback was the perfect option for the company," he notes.
        Dick's Sporting Goods is not alone. Sale/leaseback transactions are often the best option for many companies. In a nutshell, sale/leaseback transactions monetize assets at a low cost of capital; provide unrestricted cash for core business expansion or debt restructuring; shift real estate risk; and, assure long-term control over core assets.

| Top of Page | Cover | Letter to Editor | Site Selection Online | SiteNet |