With real estate investment volume down in most major categories since the first half of 2022, at least one type of transaction can be expected to deliver activity as 2023 unfolds.
Evan Lazar, global co-chairman of real estate at law firm, Dentons, said corporate sale-leaseback transactions were being struck by clients, with two multi-country projects completed by the firm’s Real Estate team between Christmas and New Year, and several other domestic deals completed over the last two months.
These have taken place in Germany, Italy and the Netherlands. One such transaction was Palmira Capital Partners’ acquisition of the Schmidtsche Schack/Arvos office, warehouse and production property in Germany.
Lazar said it was clear that in some cases companies were turning to sale-leasebacks of their owned real estate as a preferred method of financing amid tightening borrowing terms from lenders and higher interest rates.
‘The cases we are seeing involve corporates seeking to borrow. Due to a combination of both tighter lending policies and rising interest rates, they are looking at alternative ways to raise capital. We are expecting that trend to continue and to see more sale and leaseback transactions in the first half of 2023.’
Lazar is relaying what Dentons’ team of 450 real estate lawyers in Europe have been busy working on, and the prospect of more sale-leasebacks chimes with others in the real estate industry.
In late December, WP Carey’s head of European investments, Christopher Mertlizt, wrote in a guest commentary for PropertyEU that given borrowing costs had risen, more companies would lbe looking to conduct sale-leasebacks unlocking value in otherwise illiquid real estate assets to reinvest proceeds into their businesses.
Announced deals have occured so far this year. In early January, Crescendo Real Estate announced it had closed a €90 mln acquisition of the German headquarters of KME and the copper product manufacturer's main facility in Osnabruck on 30-year sale-leaseback terms.
At the end of December, Pictet Alternative Advisors announced it had acquired a portfolio of Danish properties from local company, VKR Group, all of them leased back. VKR’s CEO, Mads Kann-Rasmussen, said ownership and administration of properties were ‘not its key competencies’.
Meanwhile, other examples have arisen of late such as Civitas Investment Management buying a portfolio of properties in the UK from social care provider, CareTech for £200 mln (€323 mln).
In November, Argan, the French REIT, bought Renault Group’s logistics site in Villeroy on a 12-year leaseback deal.
In a smaller example, Fusion Fuel sold and leased back its electrolyser factory in Benvente, Portugal, to Corum Asset Management for €9 mln.
In Q3 2022, both Sainsbury’s and Morrisons supermarket groups entered into sale-leaseback deals. Chris Nichols, MD and portfolio manager at the investor, ICG, said of the Morrisons deal: ‘This transaction is an excellent example of how sale-and-leaseback investing can serve as an alternate form of financing. We continue to see similar pan-European mission-critical opportunities as we actively deploy capital across Western Europe.’
Lazar was speaking to PropertyEU this week while in Germany where he said all the major global players have appetite for more real estate, though volumes have been trending down there, similar to other major markets.
The law firm has just taken on Maximillian Schulte as a partner in its Frankfurt office to bolster the team. It has 32 real estate lawyers spread across Berlin, Dusseldorf, Munich and Frankfurt.
Speaking generally of European real estate investment, he said: ‘We saw a slowdown from the middle of last year. Beds and sheds, which accounted for two-thirds of the investment transactions we handled across Europe in 2021, slowed down significantly. Until there is price movement, for logistics and PRS multifamily, we do not expect to see that many transactions in those segments.’
‘We are still seeing transactions on opportunistic properties in those sectors, particularly logistics where there is an issue with a tenant, or where the property fits strategically in someone’s platform. But there has been a big decline overall in both logistics and PRS multifamily.’
He added: ‘We are hoping to see a pick up in general sometime after Mipim. I think in some areas, sellers might not be ready to adjust their prices until September. We’ll see.’