In an increasingly hostile credit and bank-lending environment, post-secondary career schools - business and technical training institutions aimed at recent high school graduates and older adults - are some of the latest names looking to sale/leaseback transactions for real estate financing.
New York-based real estate investment banking firm W.P. Carey & Co. has announced an $18.5 million build-to-suit funding for Allentown, Pa.-based Allentown Business School. Located in the Center Valley, Pa., Stabler Corporate Center, the state-of-the-art campus facility will be leased under a 20-year bond-type net lease followed by two 10-year renewal options. The three-story, 95,000 square foot facility is scheduled for completion in June 2003.
Minneapolis, Minn.-based developer Mortenson Development will build the facility. This is the third sale/leaseback transaction that W.P. Carey has handled for Allentown Business School.
This most recent deal follows closely on the heels of two similar transactions with post-secondary schools this past February.
The first was a $10.8 million build-to-suit funding for Universal Technical Institute, Inc. (UTI) and its indirect subsidiary, NASCAR Technical Institute (NTI). The new 145,000 square foot automotive training facility will be leased to UTI and NTI under a 20-year bond-type net lease followed by two 10-year renewal options. This is W.P. Carey's third sale/leaseback for UTI.
Located in Mooresville, N.C. - also know as "Race City, USA" - the facility began its first day of classes this week. Mooresville is home to 70% of NASCAR teams and more than 30 Winston Cup and Busch Grand National Teams.
The second transaction was a $10 million sale/leaseback financing for New Jersey-based Lincoln Technical Institute, Inc. The deal involves four training and career centers: a 31,000 square foot school in Philadelphia, Pa.; a 26,000 square foot school in Allentown, Pa.; a 51,000 square foot school in Union, N.J.; and a 50,000 square foot school in Grand Prairie, Texas.
With 23 schools located in 11 states, Lincoln offers more than 8,000 students vocational programs in automotive and HVAC repair through its Lincoln Technical Institute schools, and information technology and computer-related education and training through its Cittone Institute and Computer-Ed Institute schools.
"We've been focusing on career schools for a while, and we've seen a lot of activity in that area," said Ben Harris, a director at W.P. Carey. "Career schools are a real estate intensive business, with facilities comprising a large part of their balance sheet. They have a heavy need for real estate, and there's no real need for them to own the buildings if they can control them long term with a sale/leaseback."
Driving this trend in part, Harris noted, is the increasing use of sale/leasebacks by private equity firms. "The bank market has gotten very tough," he continued. "Most private equity firms are having to rely on asset-based lenders who don't really want to lend on the real estate, preferring instead to lend on the short-term assets such as receivables and inventory. In a number of transactions, we've teamed up with an asset-based lender to bid on deals - we can give the seller 100% of the value on the building rather than the 30% to 50% that an asset lender could provide.
"Sale/leasebacks help companies to convert under-utilized assets into working, growth capital," Harris added. "At the end of the day, they offer companies an opportunity to make their real estate work for them."