A
Goldman Sachs Group Inc.
unit that buys stakes in alternative investment managers has made its latest push into the real-estate industry by investing in a firm that acquires stores, warehouses and other properties from big companies and then leases them back.
The unit, Petershill, in November purchased a minority stake in Oak Street Real Estate Capital LLC, which has raised over $4 billion since launching in 2009. Oak Street’s funds have purchased hundreds of stores, warehouses and office buildings sold and leased back by companies such as
Walgreens Boots Alliance Inc.
and
Big Lots Inc.
The size of the stake and the price paid by Goldman weren’t disclosed, but the deal valued Oak Street at $2 billion, according to people familiar with the matter.
Since Petershill was founded in 2007, it has invested over $8 billion for stakes in more than 32 investment managers. Other real-estate firms in Petershill’s portfolio include Westbrook Partners and Slate Asset Management.
Partnering with Goldman has a range of benefits for investment firms. Fundraising becomes easier because they have access to Goldman’s global network of investors.
Goldman’s contacts also may prove useful when searching for new investments. Oak Street currently limits its property purchases to the U.S. and Canada.
But with Goldman at its side, Oak Street is now considering reaching out to drugstore chains, retailers, logistics firms and other businesses globally that might be interested in sale-leasebacks, said
Marc Zahr,
Oak Street’s co-founder and chief executive. “If you have the right partner, you can take a business like ours and turbocharge it.”
Mr. Zahr estimated that investment-grade businesses in the U.S. and Canada alone own commercial property worth $8.3 trillion that could be sold and leased back. Globally the figure is $24 trillion, he said.
“There’s a massive opportunity to unlock value and shift real estate from the balance sheet of companies that are not in the business of owning real estate to our balance sheet,” Mr. Zahr said.
Corporations have long used sale-leasebacks as a strategy for raising cash while retaining control of property they need for stores, office buildings and warehouses. Since 2014, over $6 billion in net lease real estate has been acquired per year alone by public companies tracked by Green Street, a commercial real-estate analytics firm. These companies include W.P. Carey Inc.,
Vereit Inc.,
Realty Income Corp.
and
National Retail Properties Inc.
Some of these companies took their lumps during the coronavirus pandemic when tenants stopped paying rent. In April, only 75{911ea05452e114f1778c76ca86733b6032c246f8f651bb1f01d12abf04b54efb} of tenants, on average, paid rent at the public companies followed by Green Street.
Many of these eventually paid what they owed but the tenants “were being a little cautious” early in the pandemic, said
Spenser Allaway,
a Green Street analyst. “They said, ‘Hey, I want to keep my liquidity. Can you provide me a deferral to help me sleep at night for the summer?’”
Rent collections for the sector have since bounced back to over 90{911ea05452e114f1778c76ca86733b6032c246f8f651bb1f01d12abf04b54efb}, according to Green Street. Shares of the sale-leaseback real-estate investment trusts, which are about 80{911ea05452e114f1778c76ca86733b6032c246f8f651bb1f01d12abf04b54efb} invested in single-tenant stores, restaurants and other retail on average are now down 20{911ea05452e114f1778c76ca86733b6032c246f8f651bb1f01d12abf04b54efb} since the beginning of the pandemic, compared with 35{911ea05452e114f1778c76ca86733b6032c246f8f651bb1f01d12abf04b54efb} for malls and 23{911ea05452e114f1778c76ca86733b6032c246f8f651bb1f01d12abf04b54efb} for strip centers, Green Street said.
Sale-leaseback firms tend to do better than other retail because they are more convenient and cater to immediate needs. “If you’re driving home from work you might want to stop at a convenience store and get something you need right now,” Ms. Allaway said. “You’re not going to order that on Amazon.”
Oak Street’s portfolio is about 35{911ea05452e114f1778c76ca86733b6032c246f8f651bb1f01d12abf04b54efb} retail, 50{911ea05452e114f1778c76ca86733b6032c246f8f651bb1f01d12abf04b54efb} industrial and 15{911ea05452e114f1778c76ca86733b6032c246f8f651bb1f01d12abf04b54efb} office. The firm also focuses on buying and leasing back property from businesses with investment-grade credit ratings. Since the pandemic started, Mr. Zahr said, Oak Street has collected 100 cents on the dollar on rents. “That’s the value of having an investment-grade tenant. A default on a lease can and will affect the company’s credit rating.”
Write to Peter Grant at [email protected]
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