Sale-Leasebacks Still Waiting for Star Status

Sale-leasebacks may yet emerge as a star of commercial real estate investment in 2009 as corporate owners unload assets in order to generate capital. But if first-quarter trends are any indication, the asset-leaseback strategy is still a star in the making.Reckoned strictly by dollar value, sale-leaseback transactions for the first three months of the year appear to have picked up where they left off at the end of 2008. Total leaseback volume amounted to $663.8 million nationwide through March 31, less than $15 million short of the previous quarter’s tally, according to Real Capital Analytics Inc. Office properties topped the first-quarter list at $403 million, followed by $245 million in industrial sale-leasebacks. The retail sector lagged, managing only a single $16 million deal.Though the consistent volume of sale-leasebacks over the past two quarters looks like a sign of stability, it may not tell the entire story. Tight capital markets and the gap between asking prices and bids may still be slowing leasebacks, just as they are hampering investment sales in general. More than one-third of the nation’s 2009 sale-leaseback volume stems from a single blockbuster deal: W. P. Carey & Co.’s $225 million acquisition of the New York Times Co.’s 750,000-square-foot Midtown Manhattan office condominium. And few new office deals appear to be in the pipeline. Real Capital Analytics counts only a single office sale-leaseback under contract in the United States: a $7.8 million property in Sacramento.Perhaps even more noteworthy, the number of sale-leasebacks fell drastically in the first quarter. During the fourth quarter of 2008, 45 transactions that were valued at $5 million or more closed nationwide. Only 14 closed in January, February and March. The decline looks even steeper compared to the first quarter of 2008, which yielded 76 sale-leasebacks totaling $2.1 billion.But even in this year’s tiny pool of deals, one first-quarter trend appears to be a holdover from last year: industrial assets are more likely than either office or retail properties to trade through sale-leasebacks. The number of transactions involving industrial properties outnumbered office sale-leasebacks nine-to-four during the first quarter. And in the fourth quarter of 2008, 29 industrial sale-leasebacks, more than double the 13 office deals, changed hands. Retail properties lagged far behind during the last three months of 2008, accounting for only three closed sale-leasebacks.