If the user owner of a building owns an asset that will not fit the core bucket for the institutional investment community, a seller should look for buyers that can pay the most regardless of geographic location of the asset. Barring a 1031 buyer, high net worth, and sovereign wealth, the single tenant net lease buyers have been very aggressive in the market for industrial assets.
However, to play in the single tenant net lease market, the seller must deal with the buyers who are exceptionally particular about the lease and the credit of the company. In order to get a deal done with those groups, you must have the company itself on the lease, not just an LLC. Once the credit is secured, the underwriting consists of about 80% of the time on the financial operations and 20% of the time on the real estate. Thus, the quality of the lease and the security drives pricing. This entails a detailed examination of the financials as well as the entity signing the lease. Most of the single tenant buyers want to embed in the lease the right to audit financials quarterly.
We recently marketed a 500K building in the Midwest, truly in the middle of nowhere, and sat through meetings with the CFO and the Buyer delving deep into the competitive landscape of the tenant’s business. Think of a process similar to a bank underwriting should a company want to borrow money. This is effectively what a single tenant net lease deal is, just another tool for the CFO.
I have attached a list of questions that the Tenant needs to provide in order to maximize real estate value. If a Seller can answers these points and want to maximize value, they should consider a Sale Leaseback.
Company Information
Company organization/structure chart (understanding of corporate entities)
Company business plan and goals
All Private Placement Memorandums or Road Show Presentations (prior 5 years)
Bank Presentations (prior 5 years) and Banker Contact Info
List of 10 biggest customers and percentage
List of top 10 suppliers/vendors
List of major shareholders, contacts
Management & board member bios
Financials
Current and historic tenant financial statements (request audits for 5 years)
Financial projections (request 2 years) – pro forma proj. including sale-leaseback
Current and past R&D information as well as product projections
CapEx breakdown (historical and future)
Product lines and relative market share of each (% based on revenues)
Sources and Uses of sale-leaseback funds
Capitalization Table – Breakdown of Debt and Equity Holders
Legal
All Debt/Mortgage agreements and details
Description of outstanding legal matters (if any)
Description of any other major leases
Tenant insurance certificates
Description of owned real estate (if other)
Insurance
Property insurance policy in effect for the Property
Insurance advisor contact information
MCREA structures and places sale/leasebacks for corporate users looking to sign long term leases and remove the real estate from the balance sheet. There is a healthy investor market for long term single tenant NNN leases and users are often able to liquidate their real estate without moving. For more details, please click here.
