NetLease Q&A: Corporate Partners Capital Group’s Sands Sees Healthy One-Off Deals, Approaching Market Equilibrium
- Sep 02, 2008
Net-lease sales may be down from those easy-credit days before the summer of 2007, but Howard Sands, founding principle of Los Angeles-based Corporate Partners Capital Group Inc., thinks that the lower deal volume still includes a good many relatively healthy net-lease transactions. As both sellers’ and buyers’ expectations come closer together, the market is approaching a new equilibrium, he says. Sands’ own company, which engages in both single-asset and portfolio net-lease transactions, has been an active participant in the market itself recently, typically buying one-off net-lease properties ranging from $5 million to $100 million and portfolios of up to $300 million; it has also been a seller of certain assets. The bulk of the company’s activities are now on behalf of CPCG I, a new $300 million fund backed by private capital. Recently CPNspoke with Sands about the net lease market. CPN: What’s the market like for one-off, single-tenant transactions? Sands: Until last year, sales were at historically high levels as owners sold properties, especially to move into more passive real estate investments as part of estate planning. That isn’t news. But what we need to emphasize now is that there’s still demand for single-tenant, one-off deals, as well as small portfolios, though of course it’s less than a year ago. Investors are especially selling fewer apartments, for instance, because they’re looking for fewer 1031 exchanges. So there’s less supply. But there’s also less demand, considering the state of debt finance. We’re at, or nearing, a new equilibrium point. In our own experience, we’re selling properties on a one-off basis, and in small portfolios – and those are healthy deals. We’ve adjusted our expectations compared with a year ago, and we’re getting it right – buyers are interested. CPN: Is there any tilt toward a buyers’ or sellers’ market? Sands: Neither, with an important caveat. It depends on what you have, as a seller, since there’s a flight to quality. If you have a double net-lease, or eight years to go on your lease, it’s a buyers’ market. On the other hand, if you have strong national tenants with good net leases, say 15- to 20 year-terms, with rent bumps, the market’s going to tilt in your direction.CPN: What do you see looking ahead? Sands: The question is, will the supply-demand crossover be at a higher or lower valuation? That’s hard to predict. As an owner, I don’t think values are going to tank, because debt is already hard to come by for buyers — now you can get only about 60 percent debt, and it requires a personal guarantee. Buyers are now willing to do that. In the future, non-recourse debt will come back, however – but it’s hard to guess exactly when or in what form. It’s like predicting interest rates.