Investing in sale-and-leaseback opportunities is akin to making credit investments, according to former Colony Capital executive Georges Asmar, who has established a new business dedicated to the strategy.
His Paris-based firm, LeadCrest Capital Partners, will target sale-and-leaseback opportunities across Europe, with a focus on transactions of between €10 million and €50 million in western and northern parts of the continent. It intends to build a diversified portfolio comprising office, industrial, retail and special-purpose properties with triple-net leases of more than 10 years.
LeadCrest, which was launched earlier this year, will be led by Asmar as its founder and president. He was previously global head of net lease investments at Colony, where he oversaw more than $6.5 billion in transactions during his five-year-plus tenure. Prior to that, he worked for three years as a director at net lease real estate investment trust WP Carey.
Europe has an estimated $4 trillion of corporate-owned real estate – double the addressable market in the US, according to Asmar. “There [are] lots of products to buy,” he says. “That’s what makes it very exciting for the investor.” However, while as many as 42 institutional funds in the US are dedicated to the strategy, there is much less competition in Europe, where Asmar counts less than half a dozen rivals in the sale-and-leaseback space.
He adds that investors can capitalise on two different types of credit arbitrage: where properties leased by companies with similar credit ratings can be acquired at higher yields and with cheaper debt in Europe than in the US; and in Europe’s growth markets rather than in the continent’s more developed markets. “When you invest in a property and you rent it back for 15-25 years, it’s very much a credit play,” Asmar says.
Asmar believes corporate occupiers are taking part in sale-and-leaseback deals for several reasons, including a wish to focus on their core businesses. He adds that the proceeds from such deals are attractive to occupiers: “You can take your real estate and mortgage it. If you have an interesting asset for the bank you can get 60-65 percent loan-to-value. That’s if you have a good asset. We offer 100 percent.
“I’m a lender. When you sign a 15-, 20-year lease, that’s a 15-, 20-year loan. Banks are very careful at lending money for more than a seven-year duration. So a 15-20-year lease is an attractive financing solution. You’re looking at long-term financing and you’re pushing away long-term financing risk.”
LeadCrest currently has three full-time staff, including chief operating officer Pascal Leclerc, who was previously a managing director at Colony for four years. It also has an advisory board that includes Stuart Koenig, formerly senior partner and chief operating officer at Ares’s real estate business; a net lease expert, Reggie Winssinger, who is the founder and current chairman of real estate firm National Portfolio and a former WP Carey board member; and a credit expert, Olivier Chatain, a professor at business school HEC Paris. The advisors will also invest alongside LeadCrest in transactions.
The firm intends to raise capital through an institutional closed-ended fund from institutions such as pension funds, insurance companies and family offices in both Europe and the US. Potential investments in the pipeline include manufacturing plants, car dealerships and mail sorting facilities in its target markets.
One challenge with tackling the sale-and-leaseback market in Europe, however, is that corporations across the continent are generally less familiar with the strategy than those in the US. “There’s a lot of education that needs to go into the market, as it’s not always something that CFOs are immediately aware of,” says Arvi Luoma, head of European investment at WP Carey. “Sale-and-leaseback is not as developed a product in Europe.”
And while the US is one country, Europe is made up of multiple nations with different legal and tax systems. “From a bigger-picture investing point of view, there’s quite a high level of complexity when approaching Europe,” Luoma says.
He adds that the level of competition in the European sale-and-leaseback space largely depends on the specific market: “In markets that are very liquid, very large, there’s a lot of competition. But when you move out of that space, it really does diminish.”
Real estate managers that are pursuing sale-and-leaseback investments in Europe include Angelo Gordon. The New York-based alternative investment manager attracted nearly $200 million in its first close last month for AG Net Realty Fund IV. Its predecessor vehicle amassed more than $1 billion in 2014. New York-based sale-and-leaseback firm LCN Capital Partners, meanwhile, launched its third European fund, LCN European Fund III, with a €500 million target in December, according to data from our sister title, PERE.