Angelo Gordon Finds Takers For Sale-Leasebacks

Though only a few months old, Angelo Gordon & Co.’s sale-leaseback business is off to a quick start, and the firm already has an eye toward expanding overseas.

Since closing on a $160 million fund in January, the New York firm’s Net Lease Group has completed seven deals. That includes a $58 million transaction closed on May 30 to buy three manufacturing facilities operated by beverage maker Sunny Delight, a J.W. Childs & Associates portfolio company whose debt is considered precarious by ratings agency Standard & Poor’s. The $160 million fund, when levered up, gives Angelo Gordon the ability to buy about $500 million worth of real estate, according to the firm. By the end of June, the firm expects to have put about one-third of the first fund to work. More funds will follow, each successively larger than the one before, predicted Gordon Whiting, a managing director. Whiting declined to detail the fund’s fee structure or name any of the fund’s limited partners beyond saying they’re previous Angelo Gordon backers. Prior investors include the New York State Common Retirement Fund and the University of Texas Investment Management Co.

The Net Lease Group provides further diversification for Angelo Gordon, a firm that’s most known for completing turnarounds but now invests in leveraged loans, real estate, and distressed securities. It also takes long/short positions on the public equities of health-care companies and real estate firms.

The Net Lease Group, led by Whiting and Managing Director Teddy Kaplan, targets less-than-investment-grade companies seeking to raise cash. Angelo Gordon buys up the facilities, usually manufacturing plants and distribution warehouses, and rents them back to the companies in a triple net lease; in such a lease the tenants are on the hook not only for lease payments but also for insurance costs, maintenance fees and taxes.

“We think of ourselves as capital providers,” Kaplan said. So far, buyout firms, and their debt-heavy portfolio companies, have proven to be the best clients. In early May, for example, the Net Lease Group closed deals with two portfolio companies of Carousel Capital, the Charlotte, N.C.-based buyout firm. Angelo Gordon bought the headquarters and manufacturing facilities of Simpson Performance Products Inc., a supplier to NASCAR teams; it also bought the headquarters and manufacturing facilities of Coffman Stairs LLC, a maker of wooden stair parts.

The Net Lease Group has also completed a $19.3 million deal with New York-based Wellspring Capital Management; a $9.4 million deal with New York-based Castle Harlan; and an $8 million deal with Los Angeles-based Creo Capital Partners. In late May, Angelo Gordon acquired a distribution center belonging to publicly traded Friendly Ice Cream Corp., the restaurant chain that hired Goldman Sachs in March to explore a possible sale.

The firm has no interest in taking control of portfolio companies by first buying up the real estate. “We believe in our collateral,” Kaplan said.

The move into the sale-leaseback business marks a “logical progression” for Angelo Gordon, Whiting said, since the firm can write its own debt and provide insight into pricing through its global real-estate arm, which owns buildings in North America, Europe and Asia.

The group eventually expects to take its strategy of buying properties valued between $5 million and $200 million overseas, principally in Europe.