Finance
Net Leasing
Jul 07, 2009
By: Adam Perrotta, News Writer
Beset by a still-icy lending climate, as well as continued weak fundamentals as a result of the global economic slump, cash-strapped retailers are increasingly finding themselves caught between a rock and a hard place when it comes to monetizing their real estate holdings via sale leaseback deals.
That has not stalled the market completely, though, and several retailers are still finding sale-leaseback deals to their liking, despite the lower prices of today’s market.
Gone, of course, are the days when a retailer could make a quick windfall by selling off property at the premium prices of the boom market of years past. Indeed, the very same financial forces plaguing the retail business—which has seen a rash of bankruptcies over the past few months—are also limiting the prices that prospective real estate buyers are willing and able to shell out for a given property. This conundrum has left many retailers with a tough choice; be content to accept the lower prices the market will bear for real assets, or try to make do with alternative financing options.
For Cracker Barrel Old Country Store Inc., the $57.6 million the firm added to its coffers via the sale-leaseback of 14 store locations and a retail distribution center in early July trumped the fact that those properties would likely have commanded significantly higher prices just a couple of years ago. Of course, in those days of easy financing, Cracker Barrel probably wouldn’t have needed the cash as much.
Likewise was grocer-turned-United Kingdom’s-biggest-retailer Tesco Plc. willing to accept lower pricing for a seal leaseback deal of its own. When the firm sold off 14 properties under sale leasebacks to a group of institutional and private investors, it got back £431 million for its troubles. Nothing to sneeze at for sure, but still well off the £605 million the firm commanded for a similar deal comprised of 13 properties in August of last year.
While the economy has shown some signs of improvement as of late, retailers aren’t likely to have seen the last of the dark days; just last week, bath and body product maker Crabtree & Evelyn Ltd., which operates 125 U.S. stores, added its name to the list of retailers who have filed for bankruptcy in recent months. For many such troubled firms, sale leasebacks—even for significantly lower proceeds—might be one of the few options left to stay out of the bankruptcy courts.
And, for their part, property investors are certainly taking note of the bargains that can be had as a result of such distress on the part of sellers.
By: Adam Perrotta, News Writer
Beset by a still-icy lending climate, as well as continued weak fundamentals as a result of the global economic slump, cash-strapped retailers are increasingly finding themselves caught between a rock and a hard place when it comes to monetizing their real estate holdings via sale leaseback deals.
That has not stalled the market completely, though, and several retailers are still finding sale-leaseback deals to their liking, despite the lower prices of today’s market.
Gone, of course, are the days when a retailer could make a quick windfall by selling off property at the premium prices of the boom market of years past. Indeed, the very same financial forces plaguing the retail business—which has seen a rash of bankruptcies over the past few months—are also limiting the prices that prospective real estate buyers are willing and able to shell out for a given property. This conundrum has left many retailers with a tough choice; be content to accept the lower prices the market will bear for real assets, or try to make do with alternative financing options.
For Cracker Barrel Old Country Store Inc., the $57.6 million the firm added to its coffers via the sale-leaseback of 14 store locations and a retail distribution center in early July trumped the fact that those properties would likely have commanded significantly higher prices just a couple of years ago. Of course, in those days of easy financing, Cracker Barrel probably wouldn’t have needed the cash as much.
Likewise was grocer-turned-United Kingdom’s-biggest-retailer Tesco Plc. willing to accept lower pricing for a seal leaseback deal of its own. When the firm sold off 14 properties under sale leasebacks to a group of institutional and private investors, it got back £431 million for its troubles. Nothing to sneeze at for sure, but still well off the £605 million the firm commanded for a similar deal comprised of 13 properties in August of last year.
While the economy has shown some signs of improvement as of late, retailers aren’t likely to have seen the last of the dark days; just last week, bath and body product maker Crabtree & Evelyn Ltd., which operates 125 U.S. stores, added its name to the list of retailers who have filed for bankruptcy in recent months. For many such troubled firms, sale leasebacks—even for significantly lower proceeds—might be one of the few options left to stay out of the bankruptcy courts.
And, for their part, property investors are certainly taking note of the bargains that can be had as a result of such distress on the part of sellers.
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