Goldman Sachs buys LCN for up to $410 million

Goldman Sachs agreed to acquire LCN Capital Partners for up to US$410 million, adding approximately US$3 billion in commercial real estate assets to its investment management business

Summary

Goldman Sachs will pay US$260 million in advance, with a maximum of US$150 million depending on future performance targets.

Approximately 80% of the purchase price will be paid in Goldman Sachs shares.

LCN manages sales and leaseback, custom construction and triple net lease investments in North America and Europe.

The transaction is expected to be completed before the end of 2026 and requires regulatory approval.

Goldman Sachs said in an announcement issued on August 18 that the transaction will incorporate LCN's investment fund, corporate relations and real estate teams into Goldman Sachs Asset Management.

Goldman Sachs will pay the LCN purchase price mainly in stock

Under the agreement, Goldman Sachs will provide approximately US$260 million when the acquisition is completed. If the business meets long-term performance goals and fulfills service commitments, LCN owners can also receive an additional $150 million through deferred and conditional payments.

Goldman Sachs said that approximately 80% of the total consideration will be paid in Goldman Sachs shares. Therefore, if the conditions for additional payment are not met, the final amount may be less than US$410 million.

The acquisition is expected to be completed before the end of 2026 and still requires regulatory approval and regular delivery conditions. Goldman Sachs Global Banking and Markets serves as its financial adviser, with Wachtell, Lipton, Rosen & Katz and DLA Piper providing legal advice.

RBC Capital Markets acted as a sales consultant for LCN. McDermott Will & Schulte serves as legal counsel for the real estate management company.

LCN is headquartered in New York and was founded in 2011 by Edward V. LaPuma and Bryan York Colwell. According to Goldman Sachs, its investment team has more than 30 years of experience in triple lease transactions.

LaPuma, Colwell and other LCN employees will join Goldman Sachs Asset Management's real estate division after the acquisition is completed. Goldman Sachs did not disclose whether the LCN brand would continue to be used, nor did it provide details of possible changes to its investment funds.

LaPuma said: "Our team, strategy and commitment to partners, whether capital or corporate, remain the same-what changes is the scale of our ambitions."

LCN brings US$3 billion in commercial real estate assets

As of June 30, LCN managed approximately US$3 billion in assets, with the majority of its funding coming from institutions, insurance companies and high net worth individuals. The company operates in North America and Europe and has raised 10 investment funds since its inception.

Its investment portfolio covers industrial land, office buildings, retail properties and buildings built for specific corporate uses. LCN initiates, negotiates and manages sale and leaseback, custom construction and net lease transactions that combine property ownership with an assessment of each tenant's credit.

In sale and leaseback, a company sells the building to investors and immediately leases it back through a long-term agreement. The business continues to operate in the property while receiving cash previously occupied by the building.

Three net leases pass on multiple property costs to tenants. In addition to rent, tenants often pay property taxes, insurance and maintenance fees, reducing the owner's operating expenses.

Custom construction agreements involve building or renovating buildings for specific tenants, and lease terms are usually negotiated before the work is completed. Such contracts can provide investors with known tenants and leasing arrangements, but the return still depends on the tenant's ability to fulfill its obligations.

Goldman Sachs said LCN's strategy has achieved an average annual net cash return of 10.8% in its fully invested flagship fund since its inception. LCN calculated the data as of March 31, with North American funds denominated returns in dollars and European products denominated returns in euros.

According to Goldman Sachs, LCN's funds have consistently ranked in the first or second quartile among closed-end real estate funds in terms of net multiple of investment capital and paid-in capital allocation. Past fund performance does not guarantee that the business will receive similar returns after joining Goldman Sachs.

The transaction expands Goldman Sachs 'private real estate business

Goldman Sachs manages more than US$4 trillion in assets in its investment business, based on data as of June 30. Its alternative investment division accounts for more than $706 billion and covers private equity, credit, infrastructure, venture capital, real estate and hedge fund strategies.

In real estate, Goldman Sachs said it has invested more than US$65 billion since 2012. Its existing business covers property equity, senior mortgage loans, mezzanine debt and a variety of investments from individual buildings to large investment portfolios.

LCN provides the department with a dedicated after-sales and leaseback and three-net leasing platform. Goldman Sachs estimates that companies in North America and Europe hold approximately $14 trillion in properties on their balance sheets, and only a small amount changes hands each year through net lease transactions.

U.S. companies can obtain capital through sale and leaseback without leaving the facilities they need for daily operations. For U.S. institutional investors, LCN's funds provide rental income and corporate credit exposure through private products rather than publicly traded real estate investment trusts.

David Solomon, chairman and CEO of Goldman Sachs, said LCN will provide "diversified sources of return" for asset and wealth management clients, while providing more financing options for corporate clients.

Solomon said: "Their focus complements our private real estate team's extensive 30-year track record and will expand our ability to serve insurance, institutional and wealth client groups."

Goldman Sachs expects its corporate relationships and global banking and markets networks to support LCN's partnerships with companies and developers. Its asset management distribution channel will also promote funds to pension plans, insurance companies, family offices and wealthy clients.

In June, Goldman Sachs also entered blockchain-based real estate products through a tokenized real estate fund developed jointly with Apex Group, Archax, Ownera and LRC Group. The fund reportedly represents real estate interests through Goldman Sachs 'GS DAP platform, while retaining traditional administrative, custody and regulatory controls.

The LCN deal follows Goldman Sachs '$2.25 billion acquisition of NEOS

Six days before the LCN agreement was announced, Goldman Sachs disclosed a deal to acquire NEOS Investments for up to $2.25 billion. As of June 30, NEOS managed approximately $30 billion in assets, spread across 19 options-based income ETFs.

According to previous reports in August, the acquisition of NEOS is expected to bring Goldman Sachs 'ETF assets to more than US$130 billion, including approximately US$80 billion in actively managed products. When the deal is completed, NEOS co-founders Troy Cates and Garrett Paolella will become partners at Goldman Sachs.

NEOS also manages three U.S. listed earnings ETFs linked to Bitcoin and Ethereum, putting Goldman Sachs into another area of investment management. At the time of the acquisition announcement, the NEOS Bitcoin High-Yield ETF, the Enhanced Bitcoin High-Yield ETF and the Ethereum High-Yield ETF combined held more than $1.1 billion.

Unlike the LCN acquisition, the NEOS transaction is scheduled to be completed in the first quarter of 2027. Its completion also depends on regulatory approval and regular delivery conditions.

Goldman Sachs shares traded at around $1,029.55 on Tuesday, down about 2.1% from the previous trading day's close of $1,051.31. The stock hit a high of $1,052.98 during the day and fell to a low of $1,029.46.