WPC in the News
'Still Bullish' on Net Lease Retail Despite Economic Uncertainty
Despite some economic ebbs and flows as of late, certain sectors of net lease retail, particularly those more immune to tariff concerns such as service-based businesses, remain attractive to investors who are ready to deploy capital, W. P. Carey’s Michael Fitzgerald told GlobeSt at ICSC Las Vegas last week. In this video, you'll hear: How Fitzgerald remains bullish on net lease retail amid the changing landscape over the last year; Why sale-leasebacks continue to be a popular deal type, and which types of retailers should consider them; and What sectors are seeing and will see strong demand from investors in 2025. Watch now An interview with Michael Fitzgerald, W. P. Carey, and Holly Amaya, GlobeSt.com.
The Future of Net Lease Retail
Retail investors in 2025 face shifting market conditions, including tariff concerns, interest rate volatility, higher construction costs, and increased institutional competition. According to Michael Fitzgerald, executive director and head of US retail investments at W. P. Carey, these forces will continue to influence retail investments in the months ahead. “You have many factors pushing cap rates in different directions, with new entrants and fresh capital coming into the market,” says Fitzgerald. “That increased demand naturally drives rates down. But at the same time, rising 10-year interest rates and investors trying to protect their spread are pushing cap rates up. In the end, we’ve actually seen some stability since this time last year.” Still, in the current conditions, investors are reassessing how they evaluate risk, structure leases, and identify long-term value. Pressure Points Grow Rising construction and financing costs as well as the increasing cost of imported goods have become pressure points across the sector. According to Fitzgerald, those costs translate to higher rents, especially for new sale-leaseback deals. Even with those increases, Fitzgerald emphasizes that the need to ensure profitability still holds up at the store level. “We need to make sure the metrics still make sense,” he says. Additionally, inflation has made flat leases a tough sell for investors. “It’s fair to say the age of flat leases is over,” adds Fitzgerald. “Outside of grocery, there’s really not much appetite for retail leases with flat escalations.” Sale-leaseback Opportunities Remain Despite these headwinds, the retail sale-leaseback market has continued to see growth because the structure has basic advantages over other forms of financing. Sale-leasebacks offer long-term capital with no refinancing risk and typically without the restrictive debt covenants or balloon payments of traditional debt. As a result, companies that need capital and have a real estate footprint will continue to tap this form of financing despite overall higher cap rates. According to Fitzgerald, the best candidates for sale-leasebacks are growing retailers in healthy retail segments. This includes companies that provide discount non-discretionary products and services, convenience stores, service-based segments and fitness. How Disciplined Investors Move Forward When evaluating retail assets, Fitzgerald emphasizes the EBITDAR-to-rent ratio as a key metric. “It’s the single most important metric for understanding whether a retail location is a good long-term investment. Locations with a history of consistent profit will tend to stay open and can support a fair amount of rent.” Beyond that, Fitzgerald highlights that W. P. Carey also looks at the rent relative to market and the cost basis of the property relative to its construction cost or replacement cost. The corporate credit profile also plays a major role. Fitzgerald emphasizes he often looks for companies with strong credit, market leadership, conservative capitalization, solid management, a proven track record of success, and a conservative approach to growth. “W. P. Carey has a strong history of smart credit underwriting, and in some cases, our deep understanding of credit allows us to pursue investment ideas others will not.” Despite changing market conditions, Fitzgerald believes disciplined investors still have room to thrive. For instance, he points to W. P. Carey’s access to capital, as well as their overall balance sheet strength. “We are differentiated by our large balance sheet that allows us to make all-cash offers at large scale without any financing contingencies. This enables us to consistently offer certainty of close, which is often the most important factor sellers point to when choosing a sale-leaseback partner.”
Net Lease REITs Poised for Continued Growth
In a commercial real estate market where transaction activity remains subdued, net lease REITs have been busy deploying billions in capital and steadily growing their portfolios. Many companies in the sector have good liquidity and a desire to grow and are expected to actively pursue deals they view as attractive—despite ongoing market volatility. Net lease REITs are by nature an acquisitive group. They need to make accretive investments to grow their FFO per share, and the sector is coming off a robust year of deal-making with an especially active fourth quarter. Notable highlights include: Realty Income Corp. (NYSE: O) invested $3.9 billion last year, with $1.7 billion occurring in the fourth quarter. Essential Properties Realty Trust, Inc. (NYSE: EPRT) invested $1.2 billion last year, which included $333.4 million in the fourth quarter W. P. Carey Inc. (NYSE: WPC) closed on $1.6 billion in acquisitions in 2024, including a record high of $840 million in the fourth quarter. Agree Realty Corp. (NYSE: ADC) invested $951 million in 2024, with $371 million in the fourth quarter. “One can make the argument, isn't the fourth quarter usually the biggest acquisition quarter in the year?” says Scott Merkle, managing director at SLB Capital Advisors, a real estate advisory firm specializing in sale-leasebacks. “That's usually accurate, and that probably played a role here. But more importantly, the net lease REITs coming into 2025 were trading at very attractive levels, so they had good currency with which to acquire properties.” Fourth quarter investment activity also accelerated along with signals that the Federal Reserve was moving into a rate-easing cycle, adds Jason Fox, president and CEO of W. P. Carey. “That flowed through to the 10-year Treasury and helped propel sellers who had largely been on the sidelines for much of 2024 into action, with bid-ask spreads between buyers and sellers coming in meaningfully,” he says. Appetite for Growth Despite market volatility fueled by President Trump’s proposed tariff policy, net lease REITs are maintaining cautious optimism for more growth ahead with guidance, thus far, that is similar to 2024. “The appetite to do deals and deploy capital is still there. We're seeing it every day in the transactions that we're working on with REITs that are actively offering on sale-leasebacks,” Merkle says. Net lease REITs are buying existing net lease properties and also investing in sale-leasebacks, both on a one-off and portfolio basis. However, all buyers are being a bit more cautious right now given uncertainty surrounding the impact from tariffs on consumer spending, supply chains, and the global economy. “The biggest headwind to the sector is volatility,” says Spenser Glimcher, managing director, self-storage & net lease, at Green Street. “It's one thing if the economy is slowing, but it's the uncertainty of the swings in markets week-to-week or day-to-day,” she adds. Companies are navigating in a market where there is less certainty around the ability to deploy capital and execute on acquisition opportunities. Will deals take longer to get done? And will buyers and sellers try to renegotiate different pricing or cap rates? “The volatility in the market, if anything, has made it even more important in terms of having balance sheets and liquidity because there is a certain amount of acquisition expectation that's built into this sector every year,” says Haendel St. Juste, managing director and senior REIT analyst at Mizuho Americas. Net lease REITs rely on acquisitions because it is not an internal high-growth sub-sector. Historically, more than two-thirds of growth in the sector has come from acquisitions, he notes. Tapping Equity Markets Historically, net lease REITs have funded acquisitions with roughly 50-50 equity and debt, and they’re often tapping equity via ATMs as well as traditional equity issuance. For example, EPRT has pre-funded its growth for the coming year thanks to an upsized stock offering in March that raised $254.2 million. “Because these companies are serial acquirers, the sub-sector requires lots more fresh equity every year,” St. Juste says. “Their stock price and cost of capital matters because they’re spread investing, and that’s why you see their balance sheets a little bit more liquid.” Investors often gravitate to net lease REIT stocks during cyclical downturns and volatility because of the bond-like characteristics of the sector. And the defensive nature of the sector has garnered attention this year as investors have looked for a safe spot to place capital. Net lease REITs have diversified tenancy with long-term leases that also have embedded rent bumps. Balance sheets are typically liquid and low-levered, and investors also like the steady dividend yield they deliver. “From a positioning perspective, we've seen a number of investors that have built their portfolios a bit more towards long-duration sectors in the last couple of months. If you look at what's worked year to date, it's been health care, towers, gaming, and triple net,” St. Juste says. Varied Approach to Acquisitions Although the desire to grow is there, the capacity for growth within the sector is a mixed bag. Most net lease REITs like to invest on a leverage-neutral basis and tend to be conservative allocators of capital. “If you're not trading in a premium–5% or greater to your NAV–you're kind of in the cost of capital penalty box because you're not able to go out and issue equity to grow,” Glimcher says. Triple net REITs without the need to raise any additional capital to reach, and potentially exceed, acquisition targets should be net winners, according to St. Juste. W. P. Carey is among the net lease REITs sitting in a strong capital position. “We've talked this year about having a clear path to fund our investments in 2025 without the need to raise any equity,” Fox says. The REIT plans to fund acquisitions with the sale of non-core operating assets, primarily dispositions of its legacy self-storage properties. The REIT also has a $2 billion credit facility that’s largely undrawn. W. P. Carey started 2025 with guidance for acquisitions in a range between $1 billion and $1.5 billion. “I've characterized that as appropriately conservative given the market uncertainty,” Fox says. The REIT has completed about $449 million in investments through April, primarily involving single-tenant industrial assets. The biggest and obvious headwind is the uncertainty in the world right now, where interest rates are going, where tariffs are going to land, and how that’s all going to flow through to inflation. “This uncertainty tends to chill transaction markets, and we'll probably see some of that, especially from portfolio sellers who may not be as motivated to be in the market right now,” Fox notes. However, some of those same challenges also could provide tailwinds by creating buying opportunities and perhaps motivate sellers to pursue a sale-leaseback to raise capital for their business. “We've done some of our best deals over the years during times of significant uncertainty or when there's capital markets dislocation,” he adds. Searching for Buying Opportunities Finding buying opportunities could be a near-term challenge with uncertainty that may keep sellers on the sidelines. The M&A market is typically a big source of investment opportunities for REITs as sale-leasebacks are often used as a financing tool. However, the pipeline for M&A deals has been relatively quiet this year, given the uncertainty and volatility in capital markets that make pricing more challenging. REITs also are seeing increased competition from private equity groups. According to SLB Capital Advisors, there were three large sale-leaseback deals announced in first quarter by SouthState Bank, AT&T and REI totaling more than $1.5 billion, and all three of those deals went to private equity buyers. “We hear from all the buyers we talk to that there is a shortage of quality sale-leasebacks out there, so there’s probably not as much acquisition volume as they would like, but REITs are actively pursuing those deals that they view as being attractive,” Merkle says. REITs also are well-positioned to win deals when they choose to do so, he says. “They're not stretching; they're not overpaying; but when they like an acquisition they're going after it and putting forth attractive, compelling offers,” he adds. Despite an appetite for growth, net lease REITs are keeping a close eye on their capital costs, potential credit risk and slowing economic growth. “I think the sub-sector is a net winner here, and acquisitions will be part of the story,” St. Juste says. “But we'll probably hear of deals taking a little bit longer, and in some cases, maybe a bit more competition from new private equity sources in the space.”
Sale-leasebacks emerge as a solid choice for stable returns
In the more mature US net lease market, sale-leaseback deals are an increasingly common method for corporates to raise capital to reinvest in their core business. That approach remains relatively nascent in continental Europe, though it is beginning to catch on. Meanwhile, growing M&A activity promises to boost transaction volumes on both sides of the Atlantic, explain Christopher Mertlitz, Head of European Investments, and Tyler Swann, Managing Director, Investments, at net lease specialist W. P. Carey. Download W. P. Carey’s keynote interview from the PERE Net Lease Report to learn about the future of the net lease market, private equity's growing interest in sale-leasebacks and more!
Net Lease Investors Adapt as Economic Uncertainty Lingers
Tariffs, interest rate fluctuations and macroeconomic uncertainties continue to reshape the net lease investment market. As these factors evolve, investors are working to make long-term decisions in an uncertain environment. “There’s a lot of volatility, especially around tariffs and trade policy,” says Jason Patterson, executive director of investments at W. P. Carey. “It’s difficult for a CFO or CEO to commit to a 20-year lease when so many of these factors are changing day to day.” This unpredictability has tempered deal volume, but as conditions stabilize, Patterson expects a resurgence in activity later in the year. The Impact of Interest Rate Volatility Interest rates have been a focal point for investors, particularly given their impact on pricing and transaction volumes. While rates have been trending downward recently, the past year has seen continued fluctuations, making it challenging for buyers and sellers to align on pricing expectations. “Investors really track the 10-year US Treasury as a guidepost for risk and pricing,” Patterson says. “The volatility we’ve seen has widened the bid-ask gap in many cases, making it harder for deals to come together.” He notes that as interest rates stabilize, market conditions should improve, leading to increased deal flow. Sale-Leasebacks Still Attractive Alternative to Unlocking Capital Uncertain economic conditions often prompt corporate real estate owners to explore sale-leaseback transactions as a means of unlocking capital. While Patterson hasn’t seen a major uptick yet, he expects that to change as 2025 progresses. “There are early signs of increased sale-leaseback activity,” Patterson says. “While we haven’t seen a huge spike just yet, M&A activity has been improving, and sale-leaseback volume often follows that trend.” He also notes that while uncertainty can sometimes deter companies from making long-term commitments, it can also push them toward alternative capital options, such as sale-leasebacks, to improve liquidity. Preparing for What’s Next With so much uncertainty, investors are focusing on proactive strategies to reduce risk and position themselves for long-term success. According to Patterson, much of this work happens upfront, from structuring leases with protective provisions to ensuring asset selection aligns with long-term needs. “The good thing about net leases is that once you’ve bought a building and signed a lease, there’s an expectation of long-term stability and predictability,” he explains. “The key is making sure those early decisions — such as lease structuring and tenant selection — are as strong as possible.” Active asset management also plays an important role. Maintaining strong relationships with tenants, tracking performance and being flexible with their needs can help investors handle potential challenges in the future. While economic uncertainty continues to persist, investors who remain disciplined and adaptable will be well positioned for success, and Patterson remains optimistic about the net lease market in the months ahead. “I don’t see an impending cliff or major downturn,” he says. “The best approach is to stay informed, track policy changes and make smart, forward-looking decisions.”
Tips for Ensuring a Successful Sale-Leaseback
A “great tool in really uncertain times,” the sale-leaseback can give immediate access to capital and minimize debt market exposure during uneasy economic periods. But for many looking to utilize it, the uncertainty of whether or not a deal will be successful can be a barrier to fully exploring it. Jason Patterson, SVP, investments at W. P. Carey, starts by recommending thorough planning and transparency and careful selection of the buyer and future landlord. “Especially with interest rates being volatile, knowing that your counter-party—the buyer—is experienced and well-capitalized is increasingly important, and will ensure that they show up at the closing table to complete the deal that you bargained for,” he says. Pre-Deal Prep Work Preparation and due diligence are always key in real estate investing, and it’s no different with sale-leasebacks. The seller/future tenant must figure out in advance its economic needs and preferences, including the term, rent level and rent escalators that make sense for the business. “Doing the pre-vetting process upfront on the big economic terms is key,” Patterson says. “Knowing the tenant has thought about and committed to the term and all the key economic points in a lease upfront makes a big difference and prevents the derailing of the process later on when a group might realize they can only do a 15-year lease versus a 20-year one.” Being timely and transparent about potential property issues is also critical to keeping the sale-leaseback deal on track. Whether environmental concerns, title complications or a problem with an old survey, issues will come out during the due diligence process so address them early on. Partnership Essentials: Real Estate to Relationship To enjoy the immediate access to capital, full market-value realization, preservation of operational control and other sale-leaseback benefits, corporate real estate sellers and private equity sponsors must do the deal. That means they must find the right buyer. “The biggest criteria in determining the best sale-leaseback partner is really access to capital and high certainty to close,” Patterson says. “That means finding a buyer who isn’t relying on a third-party financing source and doesn’t employ buying contingencies.” And the finish line isn’t the closing table. A buyer that is experienced in the market and a responsive, reliable landlord over the ensuing long-term lease is invaluable. “Make sure you’re choosing the right party for a long-term relationship,” says Patterson. “It’s great peace of mind knowing you have a landlord you can turn to in situations for flexibility or additional capital.” A strong partnership born of a sale-leaseback emphasizes the relationship versus a mere transaction. One of the resulting benefits for tenants is the ability to do more “bespoke-type” agreements, according to Patterson. Perhaps there’s an existing vendor the business wants to maintain ties with or the tenant has a big project underway on site; the long-term landlord can provide a flexible structure to accommodate. W. P. Carey’s sale-leaseback business has the capital to fund future tenant expansions, build-to-suits, building renovations, energy retrofits and more after the initial deal has been completed.
Net Lease Investors Eye Cross-Border Opportunities and New Property Types in 2025
The net lease market is positioned for change in 2025, with investors monitoring trends in geographic expansion and property types, as well as shifting economic factors. While the US remains a key market for many, international opportunities are gaining ground, particularly in Mexico, as noted by Tyler Swann, managing director of investments at W. P. Carey. “Mexico is a market we’ll be watching closely next year,” says Swann. “We’re seeing more sale-leaseback and build-to-suit opportunities there, particularly as more American and International manufacturers set up shop in the country.” Alongside these international prospects, investors are exploring new property types and preparing for economic factors like ongoing interest rate volatility and tariffs. By keeping an eye on these trends, investors can better position themselves for what’s next, says Swann. Geographic Expansion and Emerging Property Types While the US and Europe remain the cornerstone of net lease investment for W. P. Carey, Swann is monitoring other international markets, such as Mexico and Canada, for growth. “Our largest transaction in 2023 was in Canada,” he says. The country’s interest rates differ from those in the US, and Swann is keeping a close watch on how this impacts market pricing with an eye to expanding further if the opportunity exists. New opportunities in 2025 aren’t limited to geography, Swann notes. Some non-traditional property types are also getting a look from the net lease world. “We’re seeing more activity from net lease investors in the data center world,” says Swann. “Clearly, there’s a need for a tremendous amount of capital to fund the buildout of these new data centers.” However, he adds that W. P. Carey takes a selective approach, focusing on long-term leases to single tenants to ensure returns comparable to the company’s core industrial investments. Healthcare properties, particularly those in prime locations, are also attracting attention. “To the extent that we can find those well-located healthcare assets, I think that‘s something we’ll explore in 2025,” says Swann. Swann sees the key criteria for healthcare investments to be their proximity to population centers with favorable demographic trends and the asset’s importance to the local community. Continued Interest Rate Volatility and an Unpredictable Market As the net lease market heads into 2025, interest rate volatility remains a key concern for investors. Recent fluctuations in long-term Treasury rates have had a direct impact on asset pricing and overall investment strategies. “Long-term financing rates are also critical for how we price assets with long-term leases,” says Swann. “The uncertainty surrounding interest rates is compounded by economic factors, including potential deficit spending and the risks of future inflation.” Looking ahead, investors will need to remain flexible, evaluating opportunities, property types, and the broader economic trends to stay ahead of market shifts. “Interest rate volatility can actually benefit public REITs like W. P. Carey,” Swann notes. “We’re less sensitive to rate movements, which allows us to close deals even in volatile environments.”
What the Latest Rate Cuts Mean for the Net Lease Sector
The persistent high cost of capital, along with the fact that large amounts of corporate debt are set to mature, have been ongoing challenges for investors. The Fed’s recent rate cut – the first in over four years – leaves many speculating how investors will fare. “Impacts from these changes will take some time to see,” says Zachary Pasanen, managing director, investments, at W. P. Carey. “I don’t necessarily believe we’ll experience a rush of investment overnight. Everyone is still in the process of figuring out what the environment will look like, and there are also geopolitical situations at play.” Cap Rates and Market Sentiment Pasanen suggests a positive outlook for the net lease sector, noting that while volumes are down compared to the previous year, the sector’s resilience remains. He explains that net lease investments function similarly to bond instruments, and with rates being cut, he doesn’t believe the risk profile changes that dramatically. “I think the risk paradigm is still very much in that 7%-8% cap range,” says Pasanen, noting that while conditions may eventually spur more net lease activity, it won’t take place immediately. He also cautions that investors should not get too caught up in “rate cut mania” and risk comprising spread. Focusing on fundamentals and maintaining a disciplined investment approach remain as important as ever. Relaxed Interest Rates and the Financing Landscape Funding business growth and quickly accessing capital have left many corporates looking for alternatives to traditional financing. With the Fed’s recent rate cut, Pasanen believes that sale-leasebacks will continue to be an attractive option. He further notes that while there have been pockets of “stress” in the market, these aren’t the same as “distress.” “Many lenders were willing to accommodate borrowers and work with them,” says Pasanen. “This group made it through this past year and is saying, ‘Okay, I’ve extended the maturity of my debt and identified some dislocation among acquisition targets, and now might be a good time to raise capital and grow my business.’” However, as these businesses return to banks to raise more capital, financial institutions may have reached a limit in how much they can help, a scenario where sale-leasebacks can be beneficial. “W. P. Carey has been in business for over 50 years,” says Pasanen. “We’ve been through numerous market cycles and have a lot of capital to deploy. As the market recalibrates, we’ll continue to do what we do best – work with corporate owners to unlock the value of their real estate through sale-leasebacks.”
Keeping Up with Industrial in a ‘Wildcard’ Year
Uncertainty around interest rates, slowed transactional volumes, and a future of unknowns has left investors in the industrial sector watching trends closely. “This year has been a bit of a wildcard,” says Jason Patterson, senior vice president of investments at W. P. Carey. “People constantly speculate about what the future holds regarding interest rates, and we also saw a bit of softening on the lease demand side at the end of 2023.” As uncertainty persists, understanding a few key trends can help the industrial sector track what’s next as it moves closer to a new normal. Cost of Capital Challenges Persist As 2024 began, forecasts predicted multiple interest rate cuts; however, the Fed has held rates unchanged to date. Recently, it adjusted the previous forecast from three expected rate cuts in 2024 to one, against the backdrop of persistent inflationary concerns. Volatility around rates has also led to investor hesitancy in making long-term commitments, further impacting transaction volumes. “There is also a long and continuous trend toward e-commerce,” says Patterson. “In the near term, there has been a bit of volatility due to overbuilding in certain markets, and there is a bit more vacancy that needs to be absorbed. These shorter blips are relative to what seems to be a long-term trend toward higher value in industrial real estate.” Despite ongoing challenges, opportunities still exist for the industrial market, and understanding some existing tailwinds can help investors capitalize on these. Shift to Onshoring Onshoring is a continued tailwind for the industrial sector, especially on the manufacturing side according to Patterson. “It seems there is bipartisan agreement around a movement to onshore, as sentiments trend toward increased American manufacturing.” Upticks in high-tech chip manufacturing and transitioning the auto fleet to electric are also drivers of long-term industrial demand, says Patterson. While electric cars accounted for only 2% of vehicles in 2018, that number jumped to roughly 18% of all vehicles sold in 2023. A push toward more sustainable vehicle technologies could further drive long-term industrial demand, but Patterson cautions that continued growth could depend on the outcome of the election. Strategic Positioning and Access to Capital When operating in a market with many unknowns, a good place to start is focusing on what’s within your control, suggests Patterson. “Factors such as interest rates are out of the hands of most folks,” says Patterson. “We focus on sticking to our competitive advantage, which is underwriting sub-investment-grade long-term lease opportunities.” Agility is also key, as is working with partners who can support the market’s need for increased flexibility. According to Patterson, “This is a time when having a reputation for strong performance and access to capital is very valuable. At W. P. Carey, we are well positioned to execute with significant liquidity and capital, enabling us to be nimble in the current environment.”