What’s Next for Net Lease?
An uncertain outlook ahead, but opportunities still available for net lease investors within industrial and PE-sponsored sale-leasebacks
The effect of rising interest rates registers in many ways around the real estate world, but perhaps the starkest impact can be seen in the investment volume differential in one of CRE’s most popular sectors. Net lease investment volume decreased roughly 35% year over year in the third quarter, according to Jason Patterson of W. P. Carey. The VP of investments at one of the largest diversified net lease REITs notes the Fed’s impact on market players has been far-reaching.
“Net lease volume prior to the Fed moves had been near or at record levels so the run-up in rates certainly impacted people getting on the same page with the value of real estate or what they were willing to commit to on a cap rate basis,” Patterson said. “A high level of volatility in a space where people are making long-term investments is not the ideal environment.”
A Debt Market in Disarray
Call it a pause, a disconnect, or total debt market disarray, 2022 has brought major headwinds to a CRE industry and net lease sector that have gotten accustomed to cheap capital. Yet, Patterson reports still seeing a lot of attractive opportunities in the market.
“Private equity-backed sellers or tenants continue to use sale-leasebacks as an attractive form of unlocking tied-up capital in their acquisitions, a counter-inflationary move that in some cases has been beneficial to us,” he said. “They’re viewing it more and more as a regular, very attractive component of the capital stack, which I think is good from a broad industry perspective.”
Unencumbered by rising capital costs, equity investors have certainly found more room to work within the net lease market
“The current environment favors people in a high certainty or all-cash type of capital structure like W. P. Carey,” Patterson said. “We’ve seen increased focus on certainty of close as levered buyers signed up for deals maybe in the early part of the summer and then with rising debt costs their assumptions didn’t pan out. You see deals come back to market as more investors have to reevaluate pricing in this period of volatility.”
2023 Outlook
Citing the first half 2022 industrial deal volume exceeding more than 50% of the STNL market, Patterson forecasts that industrial product will continue to be a very attractive investment target. He added though that not all industrial product types are created or viewed equally.
“Rather than just lump everything into broad industrial, we’re looking for real estate that is extremely critical to operations for our tenants,” he said. “Maybe we’re willing to give up a little bit in terms of fungibility for increased certainty that tenants are going to renew and keep paying rent for the long term. Asset classes such as cold storage and food production are extremely important to users and they don’t have a ton of alternative options available.”
A $75 million sale-leaseback W. P. Carey completed in the second quarter embodies the above trends. The 25-year net lease for six mission-critical specialty manufacturing facilities totaling approximately 1.1 million square feet in three countries is backed by private equity.
“There continue to be more and more deals getting done with private equity sponsorship, and we’d expect that to largely continue in 2023,” Patterson said. “The trend, a positive one for the industry, really is private equity ownership looking toward sale-leasebacks.”
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As private equity firms continue to navigate a dynamic M&A environment, access to capital is critical. One increasingly important tool in their toolkit is the sale-leaseback. By unlocking capital embedded in real estate, sale-leasebacks can support transactions at multiple stages of the deal lifecycle – from acquisition financing to post-close optimization. Below, we explore how private equity sponsors are leveraging sale-leasebacks both at the point of acquisition and after closing, with a recent transaction serving as a practical example. Strengthening the Capital Stack at Acquisition In competitive M&A processes, particularly in corporate carveouts or complex platform acquisitions, certainty of financing and speed of execution are critical differentiators. Sale-leasebacks can play a key role at this stage by serving as a complementary capital source within the transaction structure. Rather than relying solely on traditional debt or equity, private equity firms can incorporate a sale-leaseback to monetize a target company’s owned real estate as part of the acquisition financing. Because land and buildings tend to sell at higher valuations than the company itself, private equity firms can sell portfolio company real estate and rent it back under a long-term lease, thereby capturing a multiple arbitrage and blending up their initial purchase price multiple without necessarily contributing more equity themselves. Using a sale-leaseback at closing serves a number of benefits, including: Providing immediate funds to aid in maximizing purchase price to a Seller (and winning an auction) Reducing the required equity investment Lowering overall cost of funds or increasing overall financing duration from traditional financing sources In this way, sale-leasebacks serve not just as a financing tool, but as a competitive edge in winning and efficiently executing complex M&A transactions. Unlocking Value Post-Acquisition While executing a sale-leaseback at closing may often be optimal, for a number of reasons acquirors may prefer to wait until post-closing to pursue a sale-leaseback. Post-acquisition capital can be a way to fund additional acquisitions, repay expensive debt, or invest in incremental equipment or higher ROI opportunities. Once a private equity firm has acquired a business, monetizing owned real estate through a sale-leaseback allows the sponsor to: Recapture a portion of its initial equity investment Reallocate capital toward portfolio company growth initiatives, add-on acquisitions or operational improvements Replace shorter-term debt with long-duration leases with no refinancing risk Post-closing sale-leasebacks offer a number of advantages in optimizing a business where additional capital could be put to better use. Private equity firms can often benefit from evaluating their real estate portfolios to find untapped sources of capital to reinvest in their businesses. Case Study: GardenCore In May 2026, W. P. Carey completed the $400 million sale-leaseback of a 43-property manufacturing portfolio leased to GardenCore, a leading U.S. manufacturer of lawn and garden consumables. The deal was completed in conjunction with a private equity firm’s acquisition of the business as part of a corporate carveout. By incorporating the sale-leaseback into the capital stack, the sponsor was able to unlock value and reduce the acquisition purchase price, illustrating how sale-leasebacks can help facilitate complex M&A deals. A Strategic Lever for Private Equity As M&A activity continues to evolve, sale-leasebacks are increasingly becoming a core component of how private equity sponsors structure and optimize their acquisitions, transforming real estate from a passive asset into a strategic source of capital. With over $6 billion in private equity financing completed since 1973, W. P. Carey remains well positioned to support private equity firms in unlocking significant capital through sale-leasebacks. Get in touch today!
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