🎙️ Real Estate: Sale-Leaseback vs. Secured Lending
🎙️ Real Estate: Sale-Leaseback vs. Secured Lending
NewLake Capital SVP and Head of Investments, Jarrett Annenberg breaks down the different approaches to Real Estate Capital.
Introduction to NewLake Capital Partners. NewLake Capital Partners has deployed ~$445M since its founding it 2019. The company currently owns 32 properties (1.7M sq ft) across 12 states, with 14.0 years remaining on leases. Jarrett Annenberg, SVP and Head of Investments at NewLake, explains that NewLake primarily purchases real estate from cannabis operators and leases it back to them, providing a capital infusion for the operators. The company owns a mix of dispensaries and cultivation facilities, emphasizing experienced operators in limited license states to mitigate risk and enhance property values.
Comparison with Competitors and Strategic Approach. NewLake is most similar to IIPR in their approach to offering a mortgage REIT product and securing long-term leases from tenants. Both NewLake and IIPR differs from Real Estate lenders like Chicago Atlantic and AFC Gamma by directly owning real estate and offering long-term leases. Unlike its mortgage REIT counterparts, which typically focus on shorter-term, secured loans with real estate as collateral, NewLake adopts a long-term lease model, providing stability and predictability for both the company and its tenants.
Focus on Limited License States and Experienced Operators. Similar to other Cannabis Real Estate Lenders, NewLake targets experienced operators in limited license states, which can provide a higher property value and lower vacancy risk.
The company’s strategy focuses on areas where licenses are directly tied to properties, creating a moat around their investments. This approach ensures that in case of tenant turnover, the limited availability of licenses makes it easier to find replacement tenants, thus maintaining the property’s occupancy and value.
Underwriting and Risk Management Practices. NewLake employs a conservative underwriting process that includes evaluating management teams, financial health, state market dynamics, and alternative use values for the properties. They emphasize quality over quantity, choosing to partner only with operators who demonstrate solid financial performance and alignment with NewLake’s strategic objectives.
Future Market Expansion. NewLake remains open to new opportunities in states like New Jersey and Ohio. Annenberg discusses the company's conservative capital deployment strategy, including maintaining significant liquidity for opportunistic deals ($82M remaining in credit facility). Despite the challenging economic environment, NewLake remains selective, seeking to enter markets with strong growth potential and favorable regulatory frameworks. Their recent transaction in Connecticut (C3) reflects their approach to finding high-value deals even in smaller, overlooked markets.
Cannabis Real Estate Competitive Landscape:
Innovative Industrial Properties (IIPR): IIPR engages in sale-leaseback transactions with cannabis operators. IIPR is often seen as the primary competitor due to its established presence and similar business model involving long-term leases with tenants in the cannabis sector.
Chicago Atlantic Real Estate Finance (REFI): Chicago Atlantic provides secured loans to cannabis operators. They typically focus on senior secured positions with real estate as part of the collateral.
AFC Gamma (AFCG): AFC Gamma also focuses on secured lending to cannabis companies. Similar to Chicago Atlantic, AFC Gamma provides senior loans backed by real estate and other collateral, targeting cannabis operators that need capital but prefer not to sell their real estate.
Power REIT (PW): Power REIT is a smaller, niche REIT focused on sustainable real estate, including greenhouse and controlled-environment agriculture facilities. They have expanded into the cannabis sector by acquiring and leasing cultivation facilities.
Rainbow Realty Group uses a hybrid model, offering both sale-leaseback deals and secured loans.