W. P. Carey Closes Major Sale-Leaseback Deal

The net lease REIT has expanded its industrial portfolio with the closing of a $217 million sale-leaseback deal with Fronterra Building Products.
Forterra Building Products portfolio

Forterra Building Products portfolio

New York—April is proving an acquisitive month for W. P. Carey. In its second transaction in less than three weeks, the net lease REIT has added a 4 million-square-foot North American industrial portfolio to its holdings, courtesy of a $217 million sale-leaseback deal with Forterra Building Products.

It’s a big deal, and W. P. Carey is no stranger to those. “Because W. P. Carey has access to significant capital, we see most large sale-leasebacks in the market,” Gino Sabatini, managing director & head of net lease investments at W. P. Carey, told Commercial Property Executive. “The advantage we have in addition to our capital resources is the ability to negotiate the transaction, complete the due diligence and underwrite the tenant and the real estate within a time frame that meets the seller’s own timing objectives.”

Consisting of 43 U.S. properties totaling 3.5 million square feet and an additional 6 assets offering an aggregate 500,000 square feet in Canada, the Forterra collection of industrial facilities is being utilized for concrete manufacturing and quality control testing. The group of predominantly multi-structure properties also includes storage and office space.

Forterra is in it for the long haul; its wholly-owned subsidiaries that currently occupy the facilities will continue to do so under a new 20-year lease agreement with W. P. Carey, orchestrated on the concrete and pipe manufacturing company’s behalf by commercial real estates services firm CBRE Group. It’s a win-win arrangement. Forterra is able to cash out and stay put, while W. P. Carey gets to bolster its portfolio with properties occupied by an industry-leading tenant with a long-term lease featuring annual rent increases.

Such sizeable sale-leaseback opportunities may not come along every day, but when they do, W. P. Carey usually knows about it. Size isn’t everything, however. “The challenge is finding deals that meet our criteria in terms of the underlying credit, the criticality of the real estate to the tenant’s business and the terms of the lease with regard to initial rent, annual bumps and length of the lease term,” Sabatini explained.

The Forterra purchase marks the second time this month that W. P. Carey shelled out the big bucks for a sale-leaseback portfolio that ticked all the boxes. In early April, the company announced a $167 million deal with Nord Anglia Education Inc. entailing W. P. Carey’s acquisition of three private preparatory school campuses to be leased back to affiliates of the school organization for a period of 25 years.

The U.S. sale-leaseback market is thriving. In a column for CPE, Stephen Counts, associate director with commercial real estate brokerage firm Calkain Cos., reported that 2015 saw the largest sale-leaseback transaction volume in recent history, and 2016 is expected to be another highly active year. There’s good reason to believe the trend will continue.

“Sale-leasebacks are a well-established form of accessing capital by unlocking the value in a company’s real estate assets, and are currently generating strong interest from corporate sellers and developers due to low interest rates and the anticipation of future economic growth,” Sabatini noted. “A factor driving this is the interest rate outlook–although the Fed seems wary of further rate increases, they have been careful to leave this option on the table.  The result is that owners of critical operating properties want to lock in long-term rents while cap rates are still relatively low.  Another driver is the M&A and LBO businesses where PE firms and other buyers are looking to have a sale-leaseback fund a portion of acquisition funding or use sale-leaseback funding to pay down acquisition debt post-closing.”

Yes, another big sale-leaseback year appears to be in the cards.