NetLease Q&A: Titan Founder Notes New Competition for Sale-Leasebacks
April 04, 2006

By Dees Stribling, Special Correspondent

CPNetLease net lease expert Dees Stribling spoke with Kevin Kaseff, co-founder of Titan Real Estate Investment Group, about where he sees the sale-leaseback market headed. In 2005, his California- and South Carolina-based business completed about $150 million in sale-leaseback transactions, including a 12-property, $55 million sale-leaseback portfolio from PETCO Animal Supplies.

CPNetLease: Has the market for sale-leasebacks reached some kind of plateau?

Kaseff: We don't see that. The core sale-leaseback business, which involves properties with predictable cash flows, is hot, as can be seen from the run-up in prices. We don't see that changing in the next year or so. Interest rates might climb a little, but not dramatically, and the number of players in the market doesn't seem to be slacking off. In fact, the number of players seems to be getting larger.

CPNetLease: What kind of new players are there?

Kaseff: There have always been the big opportunity funds in this market, the billion-dollar funds, but now we're seeing more local players, who are accessing capital more freely these days and who are competing with the bigger investors.

We're even seeing now high-net-worth individuals who not so long ago were never considered competitive on a $20 million to $40 million transaction. They are now. A lot of wealth has been created in the last decade, and it's looking for a home outside the equities market. Now a private investor can be a competitor for some of these larger deals. Finally, the tenant-in-common investors and sponsors have become major forces in larger transactions as well.

CPNetLease: Is there anything that could derail the forward motion of the sale-leaseback market?

Kaseff: You don't have to be a real estate expert to think about that. Another terrorist attack, say, or an unexpected economic slump could mean that tenants either stop growing or, worse, start contracting or even going out of business. Those kinds of things are always possible. We don't see that in the near future, but you need to remember that there will always be the business cycle, even if there's no economic or other catastrophe to slow things down.

That isn't to say that someone won't benefit from a down cycle, however. Conditions in the early '90s brought out a lot of vulture funds, and those guys are ready to go again if we have a downturn. That's the world we live in.