There’s gold in net lease real estate, if you stick to a disciplined strategy of identifying assets that are the perfect combination of low risk and high yield.
That’s the mantra of Oak Street Real Estate Capital CEO and managing partner Marc Zahr. Oak Street just completed raising $500M in equity for its latest net lease fund. Investors in Oak Street’s previous funds have seen an 8% annual distribution on a monthly basis, which is paid from real estate cash flow. Marc says Oak Street targets the net lease sector because it mitigates the landlord’s exposure to expenses. The firm focuses on long-term leases with rent escalations across the office, industrial and retail sectors.
Another part of Oak Street’s net lease strategy is targeting national tenants with strong credit ratings. Oak Street structured a $210M, five-building sale-leaseback last December from insurance giant MetLife, totaling 1.3M SF. Oak Street signed MetLife to 12-year triple net leases on the buildings with 2% annual rent increases. The acquisition was made possible with a $137M loan from Wells Fargo with a 65% loan-to-cost ratio. Marc likes the leaseback deal as MetLife has a AA- credit rating, which guarantees the underlying lease.
Oak Street entered a similar sale-leaseback deal with Sherwin-Williams on a 1.2M SF mission critical distribution center in Effingham, IL. Marc likes Sherwin Williams’ credit rating and the length of the lease, which was 15 years at the time of acquisition. Marc says Oak Street likes to focus on off-market plays. The firm does its due diligence and reaches out directly to the companies whose assets they want to acquire. Major companies like MetLife, Sherwin-Williams and Walgreens might consider selling their real estate because it allows them to take a non-earning asset and redeploy capital back into their operations.
Oak Street’s successful realizations and consistent yield have opened the firm to a diverse pool of institutional investors, such as public and corporate pension plans and insurance companies.