New Net-Lease Investment Model Arrives

Business investment firm Sanli Pastore & Hill have recently introduced a new investment model to middle-market property owners they call a Sale Leaseback Buy-Back that will serve those …

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Business investment firm Sanli Pastore & Hill have recently introduced a new investment model to middle-market property owners they call a Sale Leaseback Buy-Back that will serve those who are having trouble finding financing under tighter credit restrictions. The new net-lease investment scheme allows sellers to buy back their properties after five years of the 20-year lease expires and the firm has vetted 80 companies that will participate in the plan. Astrum Investment Management expects to achieve its first fund in the first quarter of 2014 and has already acquired several properties in pursuit of its overall $250 million goal. For more on this continue reading the following article from National Real Estate Investor.

A purveyor of a new net-lease investment model is nearing its goal for its first fund and is eyeing an even larger fund for launch next year. Los Angeles–based Astrum Investment Management (AIM) announced in May the acquisition of five industrial properties in three states, with its fund on track to approach $110 million by the first quarter of 2014.

The wrinkle in AIM’s model is that sellers have an option to buy back their properties after five years of the 20-year lease have passed. AIM intends to offer middle-market property owners an opportunity to free up capital but retain control of their properties in the short-term.

The model, which the company calls the Sale Leaseback Buy-Back (SLB3), is “very useful for market companies that are looking for a solution to grow business,” says Nevin Sanli, founder and managing director of AIM.

For more than 20 years, Sanli has also owned Sanli Pastore & Hill, a business valuation and investment analysis firm that likewise works with middle-market companies. Sanli noticed that since the recession, his clients were having difficulty obtaining financing from banks. “It requires a unique set of skills to underwrite middle-market companies,” Sanli says.

Banks typically pursue revolving credit lines or equity lines on real estate, he notes, but the valuation of fixtures and equipment comes in extremely low. “There are a lot of problems for banks loaning to these middle-market companies on a traditional basis.”

As a result, Sanli saw an opportunity to capitalize on depressed prices, presenting clients with a solution while giving investors a new option as well.

Sanli has vetted sellers through Sanli Pastore & Hill, narrowing down to 80 the companies that AIM will do business with. The founder wants to guarantee that the dose of capital to the companies will be for growth and not to stave off eventual failure.

AIM also looks for properties that are built-to-suit and that the seller has customized for their purposes. The locations are often in the last mile of the seller’s supply chain, and sellers consider them essential to operations. “They’re sticky,” Sanli says of the sites. “They need to be there.”

The firm seeks properties valued between $10 million and $75 million. Investors receive a preferred return of 8.5 percent, and the goal is cash-on-cash return of 10–12% percent. AIM sets the buyback price to deliver the desired rate of return to investors. The product matches entrepreneurs’ needs while providing a safe investment with an attractive yield, Sanli says.

AIM announced May 30 the acquisition of five single-story industrial properties in California, Virginia and South Carolina from American Forest Products (AFP), valued at $14 million. Rents will increase by 2 percent annually for the first five years of the deal, but if AFP does not exercise its buyback option, rents will go up 4 percent annually or with inflation, whichever is higher. That is intended to provide an incentive for AFP to buy back.

As demand grows among investors, AIM is working toward completing its first fund and plans to raise a second fund of $250 million in 2014.

This article was republished with permission from National Real Estate Investor.

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