Carlyle Buys iStar’s Net-Lease Business for About $3 Billion

(Bloomberg) -- The global credit unit of Carlyle Group Inc. agreed to acquire iStar Inc.'s net lease business for about $3 billion in enterprise value as part of Carlyle's expansion in real estate.

The unit will provide equity for the purchase, with Carlyle itself adding a minority balance sheet investment, according to a press release. Net-leases are rental contracts where the tenants agreed to pay for costs associated with the property besides the rental amount.

The acquisition includes iStar's portfolio of triple-net leases, where tenants are responsible for property taxes, insurance fees and maintenance costs, that consists of industrial, office and entertainment properties in the U.S.

“Acquiring iStar's net lease business jump starts our real estate credit strategy, quickly giving us scale to accelerate deployment,” Mark Jenkins, head of global credit at Carlyle said in the statement. “We expect to grow this net lease strategy into a $10 billion business with a focus on making the product available to the retail channel over time.”

Barclay Jones, who has spearheaded iStar's net lease strategy for more than 20 years, Senior Vice President Catherine Tenney and others from the unit will join Carlyle's real estate credit team.

Carlyle is pushing into real estate as part of a buildout of its global credit business. The unit made its first fund investment in the net lease arena last year by agreeing to provide as much as $300 million in capital to New Jersey-based Four Springs Capital Trust.

Real-estate credit has become an increasing area of interest for investors because of the premium offered by illiquid assets, and as a hedge against inflation. Carlyle recently hired David Schonbraun, formerly the chief investment officer of New York-based SL Green Realty Corp., to head its U.S. real-estate credit arm.

Carlyle's global credit arm, its fastest growing business the past three years, has $66 billion in assets under management, according to the press release. The transaction is expected to close in the first quarter of this year.