The recently built 36-story one-million-sf office tower at One Lincoln St. between Chinatown and South Station in the city's financial district is 100% leased by State Street Corp. The purchase price of $705.4 million, or $640 per sf, is one of the city's biggest deals ever.
To finance the acquisition, the Jenkintown, PA-based trust received a 20-year secured $520-million loan from Lehman Brothers Holdings Inc. The loan provides for a fixed interest rate of 5.79%. American Financial's equity investment in the building has been financed with available cash and the issuance of $35.9 million in Operating Partnership Units in First States Group LP, its operating partnership. The nearly two million OP Units were issued to Stan Gale and other affiliates of the Gale Co. LLC, the original developer of the site, in exchange for their interests in the property.
American Financial also notes that after what it calls "extensive negotiations" with State Street Corp., the two companies signed a broad lease amendment for the property and have agreed to terms for a new lease on the property's 900-space parking garage.
According to the amended office building lease, State Street will pay minimum annual rent of approximately $64 million, commencing immediately and continuing through the expiration of the lease in September 2023. Additionally, State Street will pay all operating expenses for the office building in excess of an annual $16.4 million cap.
Under the new parking garage lease, State Street will pay an annual net rent of $2.5 million for the parking garage in 2004, increasing to $3 million in 2005, $3.5 million in 2006, $4 million in 2007, $4.4 million in 2008, $4.8 million in 2009 and increasing thereafter by a cost of living adjustment through the expiration of the parking garage lease in September 2023. Inclusive of both the office building and parking garage leases, State Street's effective net rent will be approximately $50.5 million in 2005.
American Financial and State Street have also agreed to certain other amendments to the office building lease, including changes to the procedure under which State Street may make a first offer to acquire the building in the event American Financial chooses to sell it. In connection with the lease amendment, American Financial will pay State Street a one-time lease amendment fee of approximately $8.7 million, which includes reimbursement for advisory fees and other expenses incurred by State Street in connection with negotiation of the lease amendment.
As a result of the lease amendment and new parking garage lease, American Financial estimates net operating income of approximately $1.1 billion from the property over the life of State Street's leases.
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