We here at MarylandCommercialTitle.com published an article on April 17, 2008 regarding REITs and the notion of sale-leasebacks. Today,  the Maryland Daily Record picked up on the very same concept in their Blog;  One The Record. They point out interesting ties to two (2) major real estate investing firms, who it turns out have ties to Baltimore, and who are engaged in the sale lease-back strategy:

Interestingly, two of the three REITs Slatin focuses on have big Baltimore connections. The first is W.P. Carey & Co., “the granddaddy of this tiny group of companies,” which I wrote about in connection to its CEO’s $50 million gift to Johns Hopkins University in today’s paper. Carey is a Baltimorean through and through, and his business plan has carried him from being a freshman year drop-out at Gilman, to a seat at the head of the NYSE’s biggest limited liability corporation, worth just over $1 billion, according to Yahoo! Finance.

The other is Lexington Realty Trust, which, as the Baltimore Business Journal reports, recently bought out USF&G Financial’s share in the iconic Legg Mason building downtown. The tenants there, according to the BBJ, pay just over a million bucks a month in rent — a figure that is expected to drop by half once Legg moves over to Harbor East.

<<Here once again is the Blog entry we published on 4.17.08 >>

No question about it. Real estate investment trusts (REITs) took a beating in 2007. Is it time to buy them now? According to Peter Slatin in his recent Forbes article, the answer to this question is, for the most part, not quite yet. Recession-induced rent weakness is still to be felt. If not REITs, then what? Slatin sees buys in three (3) commercial real estate companies; all benefiting by focusing on a strategy called sale-leaseback:

• W.P. Carey & Co.

• Lexington Realty Trust

• National Retail Properties

Given the findings by Slatin,  the question now is whether sales-leaseback is an idea that you can employ, as well?? To find out, read on …

Recent REIT Performance: A view from the trees

• For the first quarter of 2008 REIT shares, achieved a return of 1%, as measured by Morgan Stanley’s RMZ index.
• Versus a loss for the broad stock market of between 7% and 14%, depending on which index you use.  

Historic REIT Performance: A view from above the forest

• Historically the trusts have run in cycles of about eight years.
• You get seven fat years followed by one lean year. We just finished a lean year.
• The five REIT bear markets since 1972 have lasted 18 months on average, with price drops of about 25%.
• The current bear market, he said, is now 14 months old, and REITs are 24% off their peaks.
• The pattern would seem to suggest that this is a great time to get back into them,
• However, as the Apr. 4 unemployment report indicated, there’s plenty of pain left in the economy. Commercial real estate will suffer, and erosion in rents could reverse the recent upward trend in REIT stocks.

A Viable Idea?

Sale-leaseback is one real estate play that can smooth out the volatility and offer wide investment diversity in property type and locale, along with consistent income that outpaces that from Treasuries.

What is a sale-leaseback? In it a buyer acquires a single-tenant property and leases it back over a long term to the seller, typically a corporation. A very small group of small-cap stocks focuses on this approach. 

The Risks: Although sale-leaseback exposes the buyer to the possibility of tenant default or bankruptcy, it also provides the buyer with a good fallback in that event: The real estate can be leased again. The leases typically have built-in rent escalations, and the tenant must cover operating costs, property taxes and insurance.

 Explore the sale-leaseback concept and find out if this is a solution for you?

Tags: REIT, sale leaseback

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