Company principal Lee Elman tells GlobeSt.com the acquisition was financed with a $7-million mortgage loan from Column Financial, an affiliate of Credit Suisse First Boston. The loan carries a 6.25% interest rate and a 25-year amortization schedule. The $3 million in equity was supplied by Elman and other high-net-worth individuals.
"Canada has a complicated tax structure--there are all sorts of withholding and income taxes-and we had to make the deal work within that structure" says Elman. "The first one is always one of the toughest."
The government tenant has six years left on a lease that has extension options. Elman estimates the cash-on-cash return in the mid teens and the going in cap rate at 12%. He says the higher cap rate has to do with the time remaining on the lease as well as the fact that cap rates in Canada are generally higher than in the US. "It's more or less like it was here (in the US) six or seven years ago," says Elman.
The acquisition was Elman's first of 2004. Elman says he has another $75 million worth of deals in the pipeline. None of the deals in the works are outside the US, "but now we are open to more, so long as they have appropriate jurisdictional protections."
The acquisitions bring Elman's total of government-lease property acquisitions to about $310 million. The company has been focused on government-leased buildings for about seven years. Its portfolio includes about 2.6 million sf in 28 properties located 19 states.
In October 2003, Elman acquired a 53,000-sf building in Birmingham, AL, for $9.2 million. Located across from two major federal courthouses, the four-story building is leased to the US Attorney General for the next seven years. In April 2003, the company acquired an 80,900-sf office building in Anchorage, AK for $11.4 million, marking its first investment in the state. The three-story building is 100% leased to the US Deptartment of Fish & Wildlife, which inked a new 10-year lease in 2002 and has leased the building since 1997.
Column Financial was founded in August 1993 as a joint venture between Donaldson, Lufkin & Jenrette and Equitable Real Estate Investment Management. In June 1997, DLJ acquired Column as a wholly-owned subsidiary. In November 2000, Credit Suisse First Boston acquired Column as part of its merger with DLJ.
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