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Q&A with Paul Domb, vice president of asset management at United Trust Fund (UTF)

Paul Domb: In times of economic uncertainty, companies want to monetize their real estate

Corporate real estate owners have been using sale-leasebacks to unlock capital for decades, but Paul Domb, vice president of asset management at United Trust Fund (UTF), says that in these uncertain economic times many companies are turning up the sofa cushions looking for revenue. Contrary to assertions that the sale-leaseback business will be dragged down by the current economic soft patch, Domb predicts a healthy year at the company founded by his father, Sidney, 37 years ago. Sidney remains company president.

In an age where an increasing number of real estate firms seek to broaden their scope or even become a one-stop shop for their clients, Miami-based UTF has focused on one niche exclusively since its inception: sale-leasebacks. Last year, UTF bought about $400 million worth of properties across the spectrum of commercial real estate, both with its own investment capital and as a joint-venture partner with GE Real Estate Finance.

UTF's clients include heavy hitters GMAC and Wells Fargo in the office arena: Robertshaw Industrial Products and Boise Cascade on the industrial front; and CVS Pharmacy and Wild Oats Markets in retail. NREI spoke with Paul Domb about the state of sale-leasebacks.

NREI: Are companies more interested in sale-leaseback deals today?

Domb: I've read that the sale-leaseback industry was crushed in 2007, but we didn't see it. Last year was strong, and this year has started strong as well, especially repeat business with long-standing clients. The motivation for doing sale-leasebacks is stronger now than before as companies look for new sources of revenue.

Raising capital isn't as easy as it used to be. A lot of financial institutions now want to do sale-leasebacks. In fact, the last time I saw so many financial institutions interested in sale-leasebacks — often involving bank branch locations — was about 15 years ago. It's a way to produce earnings when they have a problem in their mortgage portfolios.

NREI: Isn't that risky business for you?

Domb: There are some deals that we wouldn't consider, especially if the companies are too small. But despite the problems that they're having, a good many regional and national companies are solid operations that will overcome their subprime mortgage exposure. We'll get an income stream from them for the next 15 or 20 years. For our part, we have a strong interest in buying bank branches, just as we did 15 years ago. They tend to represent solid investments, both in terms of leases and real estate value.

NREI: How will 2008 compare with 2007 for your deal volume?

Domb: We're anticipating a large increase in deal volume over 2007, larger than 2007's increase over 2006 — and that was a 20% increase. That's contrary to the doom and gloom you're hearing. But for us, this year is business as usual, only better.

NREI: Have lease terms changed along with the changing market conditions?

Domb: Yes, the length of the leases had been shortening over the last three to five years due to customer demand. Five-, seven- or 10-year terms had become common. If the lease term is shorter, the company can book the revenue over a shorter period. But as of last year, 15-year and even 20-year terms were making a comeback in the marketplace. We hadn't entered into many 20-year deals in the 2000s, but now companies are looking to stretch out the lease terms to get the lowest possible lease rate. It's a trend that I expect to continue for the foreseeable future.

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