William Polk Carey, founder and chairman of multi-billion-dollar investment management company W. P. Carey & Co., died of natural causes in West Palm Beach, Fla., on Monday, Jan. 2. Carey, a trailblazer in the sale-leaseback arena, was 81 years old.

Read Commercial Property Executive’s original story on Carey here.

“William Polk Carey was a pioneer in sale-leasebacks,” Sidney Domb, president and CEO of United Trust Fund, a leader in the sale and leaseback of corporate real estate, told CPE. “I started in 1972 and there was a W. P. Carey then. He had vision and foresight to explore and go into Europe with sale-leasebacks when no one else chose to enter. He was fearless in his decisions and he will be missed.”

“As an institutional-quality buyer, they’ve been a very reliable, very well-capitalized, very well-managed firm that’s been a significant player in that niche for many, many years,” Jeff Hughes, senior director in investment sales with leading net lease firm Stan Johnson Co., said, speaking to CPE about the firm Carey founded.

With Carey as a driving force, sale-leasebacks became somewhat of a game-changer.

“He started in the industry 40-plus years ago, and prior to that time, corporate America did not have a very good outlet to take real estate assets off their balance sheet and monetize them in the form of a sale-leaseback transaction,” Hughes noted. “So it’s been a very significant financing mechanism that has allowed corporate America to do just that. If you’re in the business of building widgets then arguably you shouldn’t also be in the business of owning your manufacturing facility or your warehousing facility or your retail outlets. Carey pioneered the concept of taking that real estate off the balance sheet — you don’t need to own it, just sell it and lease it back on a long-term basis. It frees up your capital to plow it back into whatever industry you’re in, it allows you to do 100 percent financing of that asset and it still allows you long-term effective control of the asset through that long-term lease.”

Carey applied the sale-leaseback concept to veritably every sector of commercial real estate around the world. Past transactions include the $58.1 million acquisition of a 473,000-square-foot portfolio of boat fabrication and servicing facilities from a premier U.S. yacht builder, and the simultaneous closing of a 25-year lease agreement with the seller. The firm’s deals in the retail sector include the $154 million purchase of a 1.3 million-square-foot portfolio of retail facilities in Germany from do-it-yourself retailer Hellweg Die Profi-Baumärkte GmbH & Co. KG, which subsequently signed a 25-year lease with W. P. Carey for the space.

“Bill Carey was a pioneer in that industry, pioneering a concept that later became very mainstream in the capital-markets world,” Hughes said. “Many other institutions followed that path and mirrored that strategy, but he was a pioneer in making it commonplace and doing it on a very large and very professional scale for many years.”

Pioneer. It is the word that flows from the mouth of many in the commercial real estate business when ruminating about Carey. “Bill was a pioneer in the net-lease industry and those of us who now work exclusively in this niche owe tribute to his early work,” Bruce S. MacDonald, president of Net Lease Capital Advisors, shared with CPE. “He was a generous individual who gave back to the education and business communities he was a part of.  He leaves the legacy of having contributed to the growth of an industry and of having built a respected firm.

Since his passing, W. P. Carey’s board of directors unanimously elected Benjamin H. Griswold IV, a director with the firm since 2006, as non-executive chairman of the board. “A significant component of Bill’s legacy is the balanced strength of this organization and the quality of our people at all levels, which is consistent with the gold standard he set for himself and others,” Griswold said of the late Carey. “The depth and breadth of the talent within the firm and their dedication to its core beliefs position us well to continue our success and maintain the tradition of excellence that has been emblematic of W. P. Carey throughout its history.”

When Wm. Polk Carey passed away yesterday, he left behind a legacy. The 81-year-old founder & chairman of multibillion-dollar investment management company W. P. Carey & Co. was a trailblazer in the sale-leaseback arena.

A direct descendant of President James K. Polk, Carey, who passed away of natural causes in West Palm Beach, Fla., had leadership in his blood. Armed with a background as a leader in corporate finance, he founded W. P. Carey in 1973 and became one of the founding fathers of the sale-leaseback strategy, molding the company into a top force in long-term sale-leaseback and build-to-suit financing in the commercial real estate industry. The company now boasts a global investment portfolio valued at roughly $11.8 billion.

Among notable transactions, under Carey’s guidance, the company closed a $225 million mega-deal in which it acquired 21 floors of the New York Times Building in Manhattan while simultaneously signing a deal with the newspaper to remain in the space under a 15-year contract.

In addition to his role as a vanguard in commercial real estate, Carey will be remembered as an altruistic individual who was well known in charitable circles. He established the W. P. Carey Foundation in 1988 to support educational opportunities at such colleges as Arizona State University, Johns Hopkins University and the University of Maryland. Carey ensured that his generosity would outlive him by naming the foundation as the primary beneficiary of his common stock in W. P. Carey.

Demand for commercial real estate assets in the face of economic volatility helped compress cap rates for net-lease properties in the third quarter, according to a national survey by the Boulder Group. The market  for single-tenant assets should remain stable through the end of the year as demand for core assets keeps the lid on cap rates.

Released on Tuesday, the analysis by Northbrook, Ill.-based Boulder cited the decline in retail cap rates as the best illustration of the trend. During the third quarter, the bid-ask spread for retail property cap rates declined 20 basis points to 46 basis points. Overall, retail continues to offer the lowest cap rates among the three net-lease property types. Reckoned by asking prices nationwide, the average cap rate for retail properties dropped 25 basis points to end the third quarter at 7.75 percent.

As for the two other major categories of net-lease assets, cap rates for office properties dipped 15 basis points to 8.24 percent, and industrial assets declined 23 basis points to 8.47 percent.

Cap rates declined for generally for restaurants, banks, net-leased federal government properties and leaseholds; ground leases, zero cash-properties, CVS drugstores, and Dollar Brand outlets all registered upticks. Among national retail brands, rates dropped for Walgreens (5 basis points), FedEx (54 basis points) and McDonalds (40 basis points). “Historically low interest rates and a lack of quality single tenant properties were secondary contributing factors to the compression of cap rates that occurred in the third quarter of 2011,” the report said.  Supply of net-leased properties is under pressure from two directions. A development slowdown continues to reduce the volume of new product available to buyers. Retail properties on the market ticked up from 2,256 to 2,360.

A total of 540 office properties were on the market by the end of September, 103 more than during the third quarter and a 19% increase. The industrial sector added 30 new properties during the quarter, bringing the total available to 300 nationwide. Meanwhile, fewer sale-leaseback deals are coming to market because corporations needing to raise capital can turn to cash on hand and low-cost debt.

As for pricing, one-third of the net-lease assets on the market were offered for $1 million or less. The single largest category—39 percent—included properties priced between $1 million and $3 million. Higher-priced assets make up a considerably smaller proportion of what’s available. Eighteen percent of net-lease offerings carry price tags between $3 million and $6 million, and only 11 percent are priced at $6 million or more.

A new player on the net-lease scene is making a splash with a $105 million sale-leaseback deal with the O’Charley’s Inc. restaurant chain.

STORE Capital, a five-month old Scottsdale, Ariz.-based REIT, said late Monday that it has acquired 50 of O’Charley’s 342 restaurants, which the chain operates under the O’Charley’s, Ninety Nine Restaurant and Stoney River Legendary Steak brands. STORE will lease the properties back to O’Charley’s under a long-term triple-net lease. For its part, the restaurant chain said that it will use proceeds from the deal and $11.4 million in cash to redeem senior notes valued at $115.2  million

Details on the properties that changed hands were not disclosed yesterday, but according to information on O’Charley’s Web site, the company operates 227  locations in 18 Southeastern and Midwestern states under the O’Charley’s brand name; 106 Ninety Nine restaurants in upstate New York and New England; and 10 Stoney River locations in the Southeast and Midwest.

STORE—the firm name is an acronym for “single tenant operational real estate”—hung out its shingle in May with a $500 million equity raise, including a $400 million commitment from Oaktree Capital Management L.P., the investment management firm. The company is initially targeting restaurants, supermarkets, health clubs, education-related properties and other retail, service and distribution facilities.

STORE’s co-founders, REIT veterans Morton Fleischer and Christopher Volk, previously teamed up to start Spirit Finance in 2003, which the two ran for four years until selling it in 2007.  Fleisher was also the founder of Franchise Finance Corp., which he headed from 1980 until selling it to GE Capital in 2001.

Despite the prevailing economic headwinds, the net-lease space continues to perform. As proof, you need look no further than the opening of Stan Johnson Co.’s New York City office, the firm’s fourth major expansion since 2009, in order to be closer to its clients.

“The New York office was our next logical evolution,” Harold Briggs, managing director with Stan Johnson, told Commercial Property Executive. “It’s our strongest market in terms of client base, and our goal is to get close to the investors in the Northeast.”

The company, which is headquartered in Tulsa, Okla., and specializes in net-lease properties, has seen that client base grow when most firms were looking to contract. According to a report by The Boulder Group, cap rates for quality net-lease properties continued to compress in the second quarter of 2011 as demand for top properties tended to outstrip supply. And that demand for top clients is expected to continue through 2012.

“From 2007 through 2009 when investment sales as whole were down 90 percent, net-lease properties were still a star performer,” Briggs said. “It was and is a very attractive asset class.”

“We went against the trends and opened our Houston office in 2008,” Briggs said of the company’s first expansion effort. “We found two things. One, we were a lot closer to our [local] client base, but two, by going into the different markets we found strong talent in terms of our brokers.

The NYC office will bring two new brokers into the fold as managing directors: Jason Maier and Tom Georges. The city’s net-lease opportunities, according to Briggs, are numerous, including industrial and distribution space within the five boroughs, condo-ground-floor retail locations and big-box retailers in northern New Jersey.

Stan Johnson Co.’s satellite offices now include Houston, Chicago, Los Angeles and the upcoming NYC location, which will be located at 41 Madison Avenue.

Stan Johnson Co., representing both the seller and buyer, has orchestrated the sale of a 335,700-square-foot industrial building at 1700 Carillon Blvd., in Forest Park, Ohio, a Cincinnati suburb. Cincinnati United Contractors Inc. sold the property, currently occupied in its entirety by keys and signs distributor The Hillman Group, to Angelo, Gordon & Co.

According to a commercial real estate professional familiar with the suburban Cincinnati industrial market, 1700 Carillon Blvd., located at the Carillon Business Park, fetched $16.5 million. CUC originally developed the property for Hillman as a 109,000 square-foot build-to-suit in 2001 at a cost of $3 million, and completed the warehouse’s expansion to its current size in 2005. With the sale of the property finalized, CUC plans to redeploy its equity.

“The main challenge of this transaction was recasting the existing lease to add term and bringing it into conformance with institutional ownership standards,” said Craig Tomlinson, director of investment sales with Stan Johnson Co.,  in a prepared statement. “In that sense, it was really a three-way negotiation with buyer, seller and tenant.”

Industrial sales activity has increased in the greater Cincinnati market, according to third quarter 2010 report by Cassidy Turley. However, with closures and downsizings having plagued the market since the onset of the economic downturn, more than a few transactions have involved vacant or sparsely leased properties. During the third quarter, CECO Environmental Corp. sold its 250,000 square-foot plant for a reported $3 million and decreased its occupancy to just 30,000 square feet, and the long-vacant 254,000 square-foot Georgia Pacific building finally sold for just over $3 million.

But occupancy levels are on the rise. The vacancy rate dropped to 9.6 percent in the third quarter last year from 10.3 percent in the first quarter of 2010.

Sales activity in net-leased investments is substantially up since the beginning of 2010. Investors in today’s market are showing a flight to quality, zeroing in on retail properties with a single credit tenant. Properties occupied by quick-service restaurant chains and franchises, such as Jack in the Box or KFC, are among the more attractive investments. Many investors are exchanging out of various other property types into these net-leased assets that they view as more stable and secure investments.

The increased investor interest in the quick-service restaurant arena has led to a shortage of supply, resulting in a compression of capitalization rates. Properties trading at approximately $ 1.7 million to $1.8 million have experienced a cap-rate decrease of 50 to 75 basis points during the past year. In some properties, cap rates have dropped by as much as 100 basis points. For example, 12 months ago LA Fitness buildings in Southern California were trading at 10 caps. In the first half of 2010, LA Fitness buildings in the same market were trading at 9 caps.

The lack of supply in the market is due in part to increased hedge fund activity. With bank rolls of anywhere between $100 million and $1 billion, these funds are snapping up net-leased properties with quality tenants, which is driving prices up and further compressing cap rates. Although there has been an increase in distressed net-leased properties on the market, it is mostly occurring among retail strip centers valued in the $2 million to $3 million range and not in singe credit-tenant properties.

The increased activity among net-leased investments indicates that the commercial real estate market is starting to rebound, but make no mistake we are still in the midst of what is likely to be a long road to full recovery.

Courtesy Flickr Creative Commons user jimg944

By: Barbra Murray, Contributing Editor

Wineries and vineyards are about to become a big part of Realty Income Corp.’s portfolio now that the Escondido, Calif.-based real estate company has entered into a definitive purchase agreement with Diageo Chateau & Estate Wines. Realty Income will plunk down $269 million for two vineyard properties in Napa, Calif., and will lease them back to DC&E under guarantee by the wine company’s London-based parent company, Diageo Plc. Realty Income’s sale-leaseback transaction with DC&E is on track to close no later than June 30.

The transaction involves DC&E’s Sterling Vineyards winery (pictured) and Beaulieu Vineyards winery, which feature an aggregate 2,000 acres of vineyards, as well as buildings encompassing the wineries, production space, visitor centers and retail space for a total of approximately 400,000 square feet. Under the 20-year, triple-net lease agreement–which offers extension options for up to 60 additional years–the wine company will continue to manage and operate the properties. Realty Income is not going into the wine business; DC&E will still own and market its wine brands and products.

Companies owning self-occupied real estate continue to turn to sale-leaseback transactions in order to pocket cash in a hurry while staying put in their own digs. Such deals, however, are not as popular as they were a few years ago when investors could obtain credit for such acquisitions more easily. According to Real Capital Analytics Inc., sale-leaseback transactions for office, retail and industrial properties reached a six-year peak of $15 billion in 2007 and dropped to a six-year low of approximately $3.7 billion in 2009.

But the deals appear to be on the rise again. “U.S. sale-leaseback transaction activity in 2010 should easily top the amount recorded last year, but will still be well off from the totals seen in the middle of the last decade,” Dan Fasulo, managing director with Real Capital Analytics, told CPE. “Yet in the current risk-averse climate, many investors are attracted to the sale-leaseback format due to the perceived low risks involved when there is an established tenant.” Halfway through the year, office, retail and industrial property sale-leaseback transactions have already surpassed $2 billion.

Tulsa, Okla.-based net lease brokerage firm Stan Johnson Co. has completed the $62.7 million sale of a 20-property retail portfolio fully occupied by CVS/pharmacies.

The portfolio, which entails more than 248,000 square feet, has properties located in Alabama, California, Connecticut, Florida, Georgia, Illinois, Massachusetts, Michigan, New Hampshire, Pennsylvania, Texas and Virginia.

Jeff Hughes and Brandon Duff of Stan Johnson represented the buyer as well as the seller, both of whom were Texas-based. When announcing the news, Hughes said that the buyer was attracted to this particular deal given that the properties were highly leveraged and well suited to meet their particular needs.

He added that the company has several comparable transactions in the pipeline exceeding $150 million, with properties boasting long-term, bond-style leases with investment-grade tenants.

As part of its continuing expansion efforts, Stan Johnson recently opened a new regional branch in Chicago, appointing Duff as lead broker and associate director. The firm focuses exclusively on acquisition, disposition and financing of net-leased real estate in the retail, office, industrial and medical product sectors.

 What a difference a few years and a good lease make. Four years after its $25 million acquisition of the then-vacant 490,000-square-foot office complex at 550 King Street in Littleton, Mass., a joint venture of Angelo Gordon & Co. and National Development has sold the fully leased asset to Wells Real Estate Investment Trust II Inc. for $85.5 million in an off-market transaction. Home to IBM’s regional headquarters, the property holds the title of the largest software campus in Massachusetts.

Consisting of two connected three-story structures, the IBM Littleton campus occupies an approximately 40-acre parcel in the I-495 technology corridor about 30 miles northwest of Boston. The property was originally developed for Digital Equipment Corp. in 1984, and underwent an extensive renovation in 2008. New owner Wells REIT has committed to financing tenant improvements to the tune of $5.5 million for IBM, which occupies the entire complex under a net lease agreement that runs to 2020.

For Norcross, Ga.-based Wells REIT II, the most valuable feature of the asset is its occupant. As noted in a report filed by Wells REIT II with the U.S. Securities and Exchange Commission, “the financial condition and results of operations of the tenant, IBM, is more relevant to investors than financial statements of the property acquired.” With the purchase, the office REIT’s portfolio now encompasses 91 buildings accounting for an aggregate 21 million square feet in 23 states and Washington, D.C. The buildings are 96 percent leased on average, a performance that outpaces the national office market by a wide margin. By the end of 2009, the average office vacancy rate had reached 17 percent, according to Marcus & Millichap Real Estate Investment Services Inc.