Sale-Leasebacks Still Attract Attention Worldwide

The credit freeze has slowed direct investment in commercial real estate everywhere in the world, but in some places sale-leaseback activity is picking up some of the slack.That’s one of Jones Lang LaSalle Inc.’s conclusions in its “H12008 Global Real Estate Capital Report.” The latest trend in sale-leasebacks comes in the wake of rapid growth in that form of corporate finance worldwide in the past few years. In the first six months of 2005, sale-leasebacks formed $10.4 billion of the total investment transaction volume internationally. That figure rose to $20.7 billion in the first half of 2006 and to $30.7 billion for the same period in 2007.“The rise in corporate sale activity will continue and should reach $34 billion by year-end (2008)” despite continued weakness in financial markets, said Steve Collins, managing director for Jones Lang LaSalle’s international capital group. “We’ve seen a dramatic shift in sellers as a result of corporations’ need to access affordable capital outside the debt markets. A large percentage of the offerings we’re working on are corporate sale-leasebacks, and they’re grabbing the attention of global investment capital across the globe.”Historically, the growth in sale-leaseback activity has been especially popular in Europe; 56 percent of total global transactions occurred there in the first half of 2008. About a third were in the Asia-Pacific region, and the Americas counted for 9 percent: $1.1 billion sold in the United States and $900 million in Canada.According to Jones Lang LaSalle, the most active investors in the sale-leaseback market are those that do not need that bugaboo leverage so much or that enjoy good relationships with lenders and perhaps have strong cash flow from other assets. Sale-leaseback investors also tend to be long-term holders of the real estate that see their investments as an alternative to the long-term holding of corporate bonds that also maintains a hedge against inflation and an upside equity kicker.In the coming years, there will be more mandates in the United States and for U.S. multinational companies to dispose of surplus real estate, the report noted. This kind of portfolio rationalization will come against the backdrop of all-around nervousness about the economy, as well as future merer-and-acquisition activity. “The pressure to cut additional costs will be enormous,” explained Kenneth Rudy, president & COO of Jones Lang LaSalle’s capital markets group. “With real estate capital still representing a relatively attractive form of capital, corporate sale-leasebacks and dispositions will assume an increased slice of the investment pie for the remainder of 2008 and into 2009.”