Goldman Targets Asset Management Growth With $410M Deal for ‘Hands-Off’ Real Estate Firm

Make the rent check payable to Goldman Sachs, but take care of everything else yourself.

On Tuesday, the Wall Street titan announced it has agreed to acquire so-called “hands-off” commercial real estate landlord LCN Capital Partners in a transaction potentially worth as much as $410 million. It’s the second deal Goldman has struck in a week focused on pushing the boundaries of its already gargantuan $4 trillion asset-management unit.

Leased But Not Least

Operating as a “hands-off” landlord is exactly what it sounds like: LCN leases properties to commercial clients (across industrial, office, retail and other spaces), and the clients are then responsible for all other expenses, such as repairs, insurance and even property taxes. It’s what the real estate world calls “triple-net” leases, and LCN finds its properties and tenants partly through sale-leaseback agreements (buying a property and renting it back to the original owner). The arrangement has its perks for tenants, namely the ability to keep property off their balance sheets and, occasionally, lower rents in exchange for picking up all the extra expenses.

For the triple-net landlords, the arrangement offers a steady income stream from reliable corporate tenants. Which in turn creates more spokes for Goldman to add to its vast and ever-evolving flywheel:

• For starters, Goldman would be able to offer triple-net leases to existing corporate banking clients, who typically carry high credit and could provide predictable income streams. 
• Those properties and steady returns could then be packaged as investment funds for Goldman to pitch to high-net-worth clients and institutional investors. LCN has raised 10 funds since it was founded in 2011 by a Goldman veteran, and it has reported annual net cash-on-cash returns of nearly 11%.

“LCN’s differentiated platform is highly attractive for our Asset & Wealth Management clients who want diversified sources of returns and offers corporate clients innovative capital solutions,” Goldman CEO David Solomon said in a statement.

My Name Is Neos: Finding new investment platforms has become a bit of a theme for Goldman. In June, the bank launched a tokenized real estate fund on the blockchain. Last week, it announced a $2.3 billion deal for ETF platform Neos, and late last year, it agreed to buy another ETF platform, Innovator Capital Management, for $2 billion and venture capital firm Industry Ventures for about $1 billion. Looks like Solomon knows late-night DJ sets can only go so far as a diversified income stream.