Lone Star Funds acquires 23 buildings from State Farm Mutual Automobile Insurance Co

November 20
3:48 AM 2013

Private equity firm Lone Star Funds purchased 23 buildings from property- casualty insurance company State Farm Mutual Automobile Insurance Co. Chairman John Grayken's Lone Star Funds will lease the buildings back to Illinois-based State Farm. The properties are spread out in 18 locations, with the deal completed on November 8, according to an email sent to Bloomberg by State Farm spokeswoman Rachael Risinger. She did not disclosed financial details about the deal.

The transaction will enable State Farm to get cash so that it does not have to issue debt. The policyholder-owned insurance company is looking to keep its share of the market as rivals like the Geico unit of Berkshire Hathaway Inc and Progressive Corp get their share of clients in the USD 178 billion auto market.

Risinger said, "Leasing rather than owning property provides State Farm the flexibility to make adjustments in our operations to better serve our customers." She added that State Farm has the option to renew the leases if they opt to."

This was the second deal of a similar nature entered into by State Farm in 2013. In August, two of the real estate investment trusts of WP Carey Inc purchased the insurance company's operation center located in Austin, Texas. The deal was worth USD 110 million.

Brian Scott told Bloomberg that investment grade firms like State Farm go for these deals because they want to have their real estate capital generate higher returns in core businesses. Standard & Poor's had given State Farm an AA rating. Scott is the Senior Managing Director of CBRE Group Inc's sale-leaseback group.

Meanwhile, Lone Star has a USD 6.6 billion new fund that will primarily focus on investing in commercial real estate debt and equity in Europe. The fund's investments in the US would be done mostly in secondary markets, according to Lone Star.

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