Sale-Leasebacks Hit the World Stage

If there were any doubt that the sale-leaseback investment vehicle has caught on worldwide, a recent report by Real Capital Analytics confirms that sale-leasebacks not only form an important chunk of all real estate investment sales – worldwide – but also that European companies are increasingly keen on the idea. The growth of Euro-sale-leasebacks represents a marked shift in attitudes, considering that European companies were long known to be reluctant to sell the land on which their operations sat, especially their headquarters. “Corporate users capitalized on investor demand for property globally with $88 billion of dispositions in 2007, including $56 billion of sale-leaseback transactions,” noted RCA’s January/February 2008 Global Capital Trends. “The pace was set by blockbuster deals such as Tesco’s two portfolio transactions totaling 37 retail properties in the United Kingdom for well over $2 billion, and billion-dollar headquarters sales in London by HSBC, Swiss RE and Merrill Lynch.” In fact, Europe led the world in this kind of deal last year, with a volume of over $27 billion, or “about twice the sale-leaseback volume as recorded in North America,” the report said. All together, about 10 percent of the office, industrial and retail properties sold last year in Europe, Asia and Africa involved a leaseback. In the United States, only about 5 percent of all commercial property sales involved a leaseback. “Sale-leasebacks have caught on in Europe for a number of reasons,” Dan Fasulo, managing director at New York-based RCA, told CPN. “The trend started in the United States, and U.S. companies with operations in Europe popularized the concept there, especially industrial owners such as ProLogis or First Industrial.” European corporations were able to see, as their American counterparts had not long before, the effectiveness of the sale-leaseback vehicle for monetizing real estate assets, he added. “Also, in the last few years, equity investors have been using sale-leasebacks as part of their acquisition strategy, and this technique has caught on worldwide,” Fasulo continues. After the purchase of a major corporate entity by an equity investor, the real estate assets of that corporation are frequently put on the block in a sale-leaseback deal to help finance the acquisition. Fasulo predicted that sale-leasebacks will continue to be popular this year, in Europe and elsewhere, especially considering the tougher new credit environment that corporations now face. “The environment is right for the sale-leaseback,” he said. In the early months of 2008, both public and corporate real estate owners in Europe have indeed proven eager to do sale-leasebacks. Soon after the beginning of the year, for example, Spain’s Banco Santander’s, the country’s largest bank, unveiled plans to sell its headquarters for $2.8 billion and lease it back.