Jones Lang LaSalle will produce an estimated £266m in Barclays Bank sales and leasebacks from its first four auctions of 2006.
The record-breaking performance reflects fierce bidding in key rooms that produces phenomenal totals. This also reinforces the idea that the market is polarising between those whose clients do not include blue-chip sales and leasebacks and those who do have blue-chip S&L clients.
Research from Essential Information Group released this week reveals that the number of lots offered at auction in May 2006 was 15% over the number offered in May 2005 and totals raised soared by 45% to more than £691m. These numbers reflect deals for large commercial portfolios of S&Ls.
The appetite for such investment vehicles – used by retailers and other companies to realise capital from selling property and cutting operating costs by becoming occupying tenants renting on long leases – has mushroomed since Jones Lang LaSalle and Cushman & Wakefield first began the UK trend in the 1990s on behalf of E Moss and Lloyds bank.
Today the S&L trend is pan-European, spanning Germany, France, the US and Japan. HSBC is the latest blue-chip company to sell its high-street branches through Allsop, which is offering the first batch next month.
In recent years, Bradford and Bingley, Barclays and Threshers have sold portfolios through auction and the trend is evident in the leisure sector too. A secondary market has also emerged, with lots from Iceland, Booker and some Threshers that have resurfaced on the market to produce some good results for vendors.
As competition intensifies, deep-pocketed private investors and institutions are seeking both opportunistic and gilt-edged assets offering a ready-made income stream with security at home and abroad – reflected in yields as low as 4%.
Richard Auterac, JLL’s head of auctions, says: “I predicted this growth when E Moss, owned by UniChem, sold to a private investor. Its property director was getting yields of 5% when average retail yields were 6.5%.
“The key thing is that the process of going to sale through auction needs managing. A corporate occupier looking to realise assets either by portfolio or individual sale is looking for a tried-and-tested auctioneer who can get a 100% result by a seamless process of moving assets from their ownership to a private investor’s.”
In April, Cushman and Wakefield sold 29 sale and leaseback investments for Barclays at an average yield of 4.5%. Seventeen were knocked down at Allsop’s auction for a total of £11.6m, an average yield of 4.15%, while Threshers sold 10 properties for an average initial yield of 5.3%.
Patrick Kerr, Allsop’s head of commercial auctions, believes that S&L investor fortunes will remain unchanged if interest rates remain steady. He says: “Corporates will want to raise cash for whatever purpose, particularly if you look at what stocks and shares are yielding and the risk factors compared to property.”
S&Ls are also popular in the leisure sector. John Barnett, managing director of Barnett Ross, sold nine lots let to Provence Commercial Properties for prices well above reserves at its spring auction.
Barnett says that the performance of a kebab restaurant with accommodation sited in Wimbledon Broadway and let for £30,500 pa until 2020 and producing an initial 4% yield would have been impossible for any valuer to prejudge.
“In some cases, this yield was stronger than some of the Barclays sale and leasebacks we have seen recently,” he says.
Speculation is mounting about the potential of doctors’ surgeries for S&L. Harman Healy Commercial auctioneer Felix Rigg says that due diligence is important.
“No doubt these surgeries will appeal to buyers since they offer a secure covenant and a long-term income stream.
“But there is a murkier side to S&L. People with a less secure covenant than the Barclays model want to use the process as a means to fund expansion and brand building, so I would advise buyers to look very carefully at these propositions.”
