Twin Cities area sale-leasebacks head sky-high in tough economy

Sale-leaseback deals are reaching new heights in the Twin Cities as more companies search for ways to free up cash to invest in their businesses.

The value of such transactions is expected to jump to $328 million this year compared with $133 million in 2011 and just $35 million in 2010, said Steven Buss, an investment broker and sale-leaseback specialist for the Minneapolis Office of CB Richard Ellis.

"We've had more sale-leasebacks in the past four months than we've had in the last decade in this market," he said.

In a sale-leaseback, a company sells the property it owns and occupies, and then leases it back from the new owner, usually in an advantageous, long-term deal. This allows a business to use the money from the transaction to pump into its operations or invest in other ventures.

What's driving the trend is a tight lending environment and an overall tough economy, which has forced businesses to find creative ways to generate cash.

"These companies aren't in the real estate business," said Fort Parker, a vice president with hedge fund Angelo, Gordon & Co., during a meeting this month with the Minnesota Commercial Association of Realtors.

Instead, they're seeking to exit the volatile real estate market and create liquidity. For companies that have no plans to move, their sale-leaseback proposals are finding eager buyers.

By far, the biggest one was Blue Cross Blue Shield of Minnesota's sale of its 1 million-square-foot Eagan headquarters in January to W.P. Carey & Co. for $151 million -- a deal that CBRE brokered.

Also making waves late last year was the sale of Optum Health's headquarters to Angelo, Gordon & Co. for $50 million and the sale of Cargill's Excelsior Crossings "C building" to Hines REIT for $69.5 million. CBRE brokered the Cargill deal, and Northmarq Real Estate Services handled the Optum Health transaction.

Buss added that there were common threads among those transactions.

"They were all long-term commitments for the companies -- in the case of Blue Cross, they've been on that campus since the 1970s," Buss said. And the Twin Cities' status as longtime home to a sizable roster of corporate giants is also helping drive these deals.

Companies that committed significant resources into building and acquiring real estate to accommodate growth -- such as Cargill and UnitedHealth (which owns Optum Health) -- are now taking the opportunity to recapitalize the assets and deploy the cash elsewhere.

"Long-term sale-leaseback deals are really a blend of real estate and credit," Angelo, Gordon's Parker said. "For us, it's as much about credit as the real estate -- and Minneapolis, in our estimation, is the best, or one of the best, markets in the country. It's shown positive trends while most others have gone down."