Griffin Capital Launches Net Lease REIT

GlobeSt.com - November 19, 2009

With its securities registration effective earlier this month, Griffin Capital Corp. has rolled out its new investment vehicle, the GC Net Lease REIT Inc.

The publicly registered, non-traded REIT will purchase both sale-leasebacks directly from corporate occupiers and existing net lease assets from third parties, though its preference is for sale-leasebacks, since those allow the REIT to structure its own leases. It is targeting “mission critical office and industrial properties that are net leased to corporate tenants for long duration,” says Griffin Capital president Kevin Shields.

It’s those kinds of assets—diversified by tenant credit quality, industry, geography, lease duration and property type—that will provide “a very stable return dynamic for us and our investors,” Shields tells GlobeSt.com.

While Griffin Capital management had considered launching a net lease REIT a few years ago, it ultimately waited until this year. One main reason for shelving the REIT earlier was the low cap rate environment in which properties were selling. To be able to pay shareholders a reasonable dividend, properties would need to be purchased in the range of 8.65% to 8.7% caps, says Shields. “At the end of ’07, there was nothing you’d want to own at that kind of cap rate,” he adds.

Today, however, Shields says he sees the return of asset pricing that makes sense, and expects attractive buying opportunities ahead. “We see some pretty frothy opportunity in the sale-leaseback market going forward, because given the capital constraints for every corporate borrower out there, the opportunity to do a sale-leaseback transaction appears to be progressively more appealing” to corporate America, he says.

GC Net Lease REIT’s management team is currently looking at several potential deals, at least one of which Shields hopes to have closed by the end of the year. But unlike most non-traded REITs, GC Net Lease REIT has launched already owning two properties, which were contributed by Griffin Capital principals and represent about $55 million in value, including more than $20 million of equity.

The assets, which Shields says are indicative of the kind of assets the REIT intends to buy going forward, have both recently undergone renovations and extended their absolute net lease leases. One is a 176,025-square-foot office and laboratory facility in Plainfield, IL used by Chicago Bridge & Iron Co. on a 15-year lease that expires in 2022; the other is a 565,206-square-foot distribution facility in Clinton, SC, occupied by Renfro Corp. on a 12-year lease that expires in 2021. Both have rental increases and renewal options.

“Our initial property contributions help support our current dividend,” says Griffin Capital national sales director David Ford. “We are very excited to be bringing this product to the marketplace at this point in the real estate market cycle.”

GC Net Lease REIT’s registration allows it to raise $750 million of equity over the next couple of years, and it can be re-filed in the future to sell even more shares. To start, Shields says he expects to raise $100 million in 2010, which could translate to a couple hundred million dollars of properties. And ultimately Griffin Capital’s objective is to raise as much as $3 billion of equity over a seven-year period, building a portfolio of $5 billion to $6 billion of assets in the process and eventually listing the REIT on an exchange, he says.

Griffin Capital has been investing in the net lease property market going back to 1996. In more recent years, it has been a sponsor of investments structured as tenant-in-common and Delaware Statutory Trust programs, with both single-tenant and multi-tenant assets. Single-tenant properties account for about one-third of its current $1 billion of owned and managed assets. Sphere: Related Content