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Oak Street Real Estate Capital's successful sale-leaseback strategies are well-suited for local and state governments facing budget crises, according to CEO Marc Zahr and Chief Financial Officer Jim Hennessey.
Zahr and Hennessey told Crain's Chicago Business that governments can benefit while Oak Street's backers can realize huge returns on their investments from deals like the firm's offer to the state of Connecticut and its capital, Hartford, to acquire up to $2B in government real estate assets.
Zahr told Bisnow in March 2016 that investors in Oak Street's acquisition funds have seen up to 8% annual distribution on a monthly basis, thanks to a disciplined strategy of targeting triple net lease properties. One of Oak Street's largest deals happened in September 2016, when the firm bought 55 First Midwest Bank properties for $150M. Oak Street and First Midwest Bank agreed to 14-year leases on the branches, with regular rent increases.
Oak Street allows the governments to choose what properties they want to sell, from office assets and healthcare facilities to transit-related properties. Zahr and Hennessey said they believe it is a win-win. The cash infusion would allow the governments to pay down underfunded pensions, fill budget deficits and set up rainy day funds. But the deal would be contingent on Oak Street raising rents 1.5% annually, and for its backers to realize a 7.25% initial return. Zahr and Hennessey compare the offer to corporate sale-leaseback strategies, which increased 40% in 2017 to $75B in sales volume.
Oak Street closed a $1.25B fund last fall.
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