Capital Markets Favor Sease Securitization Over Debt Financing On Core Owned Real Estate Assets

Companies that own commercial real estate critical to core business operations have a compelling financing and liquidity vehicle which has been underutilized: the sale-leaseback. Most large corporations rely on mix of short-term and long-term senior debt, revolving credit lines and free cash flow to fund operations. Much of the debt in the corporate financial ladder is subject to a balloon payment or refinancing at a specific date down the road. Sale-leaseback transactions, long used by private equity sponsors, is now growing in popularity among publicly traded corporations, as evidenced by the 30.5 percent year-over-year increase in single-tenant office and industrial transactions in the previous twelve months. Much of this growth can be attributed to corporations seeking the advantages created by recent fundamental changes to interest rates and spreads in the capital markets and the resulting increase in real estate values. In April 2019, ten-year U.S. Treasury interest rates fell below 30-day and 90-day LIBOR. Prior to this, there had not been an inverse relationship between long-term U.S. Treasuries and short-term LIBOR rates in more than 12 years. Since April, Treasury yields have continued on a downward trajectory while spreads also narrowed. At the same time, short-term LIBOR yields increased and their spreads widened, negatively impacting many U.S. corporations, as its estimated that U.S. corporations have over $200 trillion dollars in LIBOR-based exposure. Click to read more at