Capital redeployment

Princeton, New Jersey-based Sovereign Investment Company has completed a $69 million (€43.7 million) sale-leaseback deal for 32 Lone Star Steakhouse & Saloons steakhouses operated by private equity firm Lone Star Funds, allowing Lone Star to recapitalize its investment in the restaurants. Purchased by Sovereign, the properties will be leased back for at least 15 years on a triple-net lease basis.

Lone Star Funds acquired the casual dining steakhouse chain – which currently operates 180 Lone Star Steakhouses and Texas Land & Cattle restaurants in 30 states – in December 2006.

Jeff Hoppen, chief investment officer for Sovereign Investment, spoke to PERE about the company's specialization on sale-leaseback deals. He argued that private equity firms were now factoring in this financial tool before even considering a deal, rather than much later down the line: “In today's market it's even more of a tool.”

Companies eager to turn a debt asset into an earning asset look to sale-leasebacks as a way of redeploying much-needed capital, he said.

“[Private equity firms] don't need to own the real estate. [Sale-leaseback] has always been a part of the strategy, it's just that now rather than planning this along the way after the company has been bought, more and more and more we are seeing it as part of the acquisition.”

Sovereign is actively working with five private equity firms on saleleaseback deals. Hoppen added that the firm was focusing on private equity real estate as part of its strategy.

Sale-leasebacks are often the “biggest” part of the financial package for a deal, said Hoppen. “It is a consistent source of capital. It's the financial choice de jour.

“I would say it's probably one of the most important, if not the most important, strategies right now,” said Hoppen.

In a statement announcing the Lone Star deal, Peter Mavoides, chief executive and president of Sovereign Investment Company, noted that with the credit market dislocation chief executive officers were looking to alternative capital strategies and seeing “sale-leasebacks as more attractive then they have been in the past.

“We are very excited about the recent pick up in activity and look forward to creating new partnerships in the coming year,” he added.

Sovereign Investment Company has invested more than $825 million in single-tenant real estate with recent sale-leaseback acquisitions, including a $78 million deal for 28 Joe's Crab Shack restaurants, a $15.3 million deal for 20 Pizza Hut restaurants in Wisconsin and a $75.5 million acquisition for seven ShopKo department stores in the western US.

Carlyle, Ashkenazy pay $680m for NYC office tower
The Carlyle Group and New York-based private real estate investment firm Ashkenazy Acquisition Corporation have acquired the approximately 600,000-square-foot 650 Madison Avenue office and retail building for $680 million (€430 million). The seller was Hiro Real Estate Company. Located in Midtown Manhattan, between 59th and 60th Streets on Madison Avenue, the property is located in the heart of New York City's Plaza District and across from the 50-story General Motors building. The 650 Madison Avenue tower also includes approximately 90,000 square feet of prime retail space counting tenants such as Crate and Barrel and Todd's. The building's office tenants include Polo Ralph Lauren's corporate headquarters, Columbia Presbyterian and several prominent investment firms.

Hampshire expands industrial portfolio
The Hampshire Companies has picked up a 116,000-square-foot industrial building in Linden, New Jersey from E&M Equities. The acquisition, made through its $350 million Hampshire Partners Fund VII, is located on 4.1 acres in close proximity to Port Elizabeth, Port Newark and Newark Liberty International Airport. The building also features two drive-ins and eight loading docks. “The building's strategic location makes it an excellent investment vehicle for our fund,” Hampshire executive managing director Norman Feinstein said in a statement at the time, adding that its “proximity to the ports and airport makes it an ideal space for a variety of industrial and warehouse tenants.”

ING takes DC offices for $115m
New York-based ING Clarion Partners has acquired the 1111 19th Street NW office building in Washington DC from The Blackstone Group for $115 million (€75 millon), approximately $456 per square foot. The 12-story building is located in close proximity to The George Washington University and the area's Golden Triangle Business Improvement District. The building includes tenants such as Ogilvy Public Relations, the General Services Administration and the American Forestry and Paper Association. The property was approximately 95 percent occupied at the time of sale.

CalSTRS JV to build on 55 acres in Canada
FirstCal Industrial Canada, the joint venture between the $175 billion (€112 billion) California State Teachers' Retirement System (CalSTRS) and First Industrial Realty Trust, has acquired 55 acres of developable land in Nisku, Alberta, Canada, a submarket of Edmonton. The site, known as First Park Nisku is close to Edmonton International Airport with frontage along the Queen Elizabeth II Highway, the major highway connecting Calgary and Edmonton. The joint venture is planning to expand the infrastructure and utilities of the site as well as preparing it for vertical development with future development plans including build-to-suit facilities and select sales of land parcels to corporate customers.