One Mellon Center Comes to Market

PITTSBURGH, PA-Philip Morris Capital Corp. is selling the leasehold interest in One Mellon Center, a 50-story, 1.5-million-sf CBD office building here that is master leased to Mellon Financial, which recently extended its lease through 2028. GVA Worldwide has the disposition assignment. One local source tells GlobeSt.com that Downtown’s second-largest building should fetch between $210 million and $225 million, which translates to a cap rate in the 7% range.Mellon occupies 1.1 million sf for its world headquarters and subleases the remainder, which includes 130,000 sf of retail on three levels and 270,000 sf of office. GVA’s James Murphy declined to confirm the expected sale price, but did tell GlobeSt.com the attractiveness of the deal is level cash flow from a bondable lease with a AA-rated tenant. According to the lease agreement, Mellon will pay $62.92 million per year through 2008–all of which will go toward debt service, according to the source–and then $15 million per year thereafter. The aggregate value of the lease is $551.7 million, according to public documents.Murphy says the property officially came to market this week and the call for offers will come in the next couple of weeks. The top several bidders will then be asked to come back with best and finals and the property should be under contract a few weeks after that. “We have a very simple process, very streamlined,” says Murphy.According to local reports, Mellon Financial will be vacating DeBartolo Property Group’s Two Mellon Center [also known as the Union Trust Building] when its lease expires in May 2006 as part of a plan to reduce occupancy expenses by housing its Downtown workers into three buildings rather than four. The consolidation follows Mellon’s exit from retail banking in 2001. The three buildings it will continue to occupy are One Mellon, the 41-story 525 William Penn Place building and its 750,000-sf, three-year-old Client Services Center.