A Goldman Sachs fund is betting on real estate

on Dec 22, 2020
  • A Goldman Sachs fund bought a minority stake in another outside real estate focused fund.
  • Oak Street Real Estate Capital buys properties with tenants and leases back the space to them.
  • Buyback-lease investment firms are performing better than their other real estate counterparts.

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An investment fund belonging to Wall Street giant Goldman Sachs Group Inc (NYSE: GS) is making a bet on stores, warehouses, and other real estate properties, according to The Wall Street Journal.

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Sale-leaseback strategy

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A Goldman Sachs fund called Petershill bought a minority stake in another fund called Oak Street Real Estate Capital. Oak Street was launched in 2009 and has since raised more than $6.5 billion in capital. The fund focuses on acquiring real estate properties and then leasing space to retail tenants.

It isn’t clear how much Goldman invested in Oak Street and Goldman can bring a lot to the table. Most notably, future fundraising campaigns will be a lot easier because Oak Street’s name is tied with Goldman and it can count on Goldman’s global rolodex of wealthy investors and institutions.

Goldman can also help Oak Street expand beyond its current market of the U.S. and Canada, according to WSJ. Oak Street can also present itself to drugstore chains, retailers, logistics firms, and other businesses that would potentially be interested in a sale-leaseback deal.

These companies would benefit from a cash infusion from the one-time proceeds of a sale. Also, retail chains and other companies aren’t typically in the business of real estate ownership and may not want to deal with the responsibilities that come with owning land.

Oak Street Co-Founder and Chief Executive Marc Zahr told WSJ the total value of all investment-grade businesses in the U.S. and Canada alone it addresses is $8.3 trillion. The figure is roughly four times as large globally.

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Odd timing for a deal?

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The timing of Goldman’s expansion into a real estate deal may seem odd to some as the full impact of the COVID-19 pandemic on real estate may not be known for years. But data from commercial real estate analytics firm Green Street tells a different story.

Back in April, 25% of tenants were not able to pay rent owed to a public company Green Street tracks. By December this figure has since fallen to 10%.

Shares of public sale-leaseback real estate investment trusts have fared better than their other real estate counterparts. Specifically, shares of a sale-leaseback company are down 20% since the start of the pandemic versus mall REITs that are down 35% and strip center REITs that are down 23%.

Sale-leaseback companies tend to outperform other REITs because they are exposed to convenient stores and other retailers that address urgent and immediate needs, like pharmacies.

“If you’re driving home from work you might want to stop at a convenience store and get something you need right now,” Spenser Allaway, a Green Street analyst, told WSJ. “You’re not going to order that on Amazon.”

Commercial Real Estate Funds & Trusts Real Estate