Government Properties Trust Bags 1201 Lloyd for $49M

PORTLAND, OR-Government Properties Trust Inc. is the new owner of 1201 Lloyd. The public REIT from Omaha paid $49 million for the two-year-old, 224,000-sf building that is 96.5% leased, mostly to government tenants. The seller is a partnership comprised of New York-based Island Capital Group and Transworld Properties, headquartered in Houston.The 1.7-acre property is located near Interstates 5 and 84 in the Lloyd District and includes a separate but adjacent 471-slip parking garage and 2,453 sf of retail space. It sits across Holladay Park from the Lloyd Center Mall and adjacent to the region’s light rail line, which provides access to and from the Central Business District, Portland International Airport, Oregon Convention Center and suburban Portland. Government tenants fill 66% of the building. The US Department of Agriculture and the National Oceanic and Atmospheric Administration are on 10-year firm-term modified gross leases. Other governmental entities with five-year firm-term modified gross leases include the Federal Bureau of Investigation, Bureau of Indian Affairs, Office of Hearing and Appeals, Bureau of Reclamation, and Bureau of Alcohol, Tobacco and Firearms. The largest non-governmental tenant in the building is Integra Telecom, with a seven-year firm-term triple-net lease for 51,000 sf. Other non-governmental tenants that have triple-net leases with firm-terms that range from one to 10 years include Lawyers Title Insurance Corp., Washington Mutual Bank, Stewart Title of Oregon, Inc., Contractors Bonding and Insurance Co. and Quiznos. The total annual revenue for the above leases will be approximately $5.4 million comprised of straight-lined rents of $4.5 million, and $900,000 in tenant reimbursements and parking income. Rent has been calculated over the leases’ firm terms and straight-lined to incorporate rent concessions. The rent concessions will be exhausted by August 2006. Upon the completion of the concessions, the cash to be received from rents will approximate $4.7 million. The anticipated operating expenses for the property are approximately $3.5 million, which includes $1.6 million for depreciation and amortization and $45,000 in reserves. Interest, related to a mortgage to be placed on the property, has been locked at a fixed rate of 5.49% on $39.1 million, pending the closing of the loan. “Despite the significant non-governmental revenue associated with this particular acquisition, non-governmental revenue currently represents about 8% of our total portfolio revenue,” says GPTrust president/CEO Thomas Peschio. “Our target for non-governmental revenue is 6% or less of the total portfolio, which will be met once pending acquisitions of property under contract are closed.” One of those pending acquisitions is the eight-story, 290,000-sf Niagara Center in Buffalo. It was built for $40 million and then fully leased to government tenants. GPTrust will pay about $71 million for the property. The sale is expected to close in the next six weeks.1201 Lloyd was developed by Transworld and Insignia Financial Group. When the building was completed without any signed tenants in March 2002, the Lloyd District’s overall class A vacancy rate jumped from 3.75% to 20.5%, the highest in the CBD at that time. The building’s first tenant was Oregon Title, which took 3,000 sf in September of that year. In May 2003, the GSA inked a 6,477-sf lease in the building on behalf of the Bureau of Indian Affairs. Leasing activity then all but stopped until 2004, when during the first half of the year nearly 80% of the building was leased, mostly by the GSA.Island Capital, was formed in July 2003 by Andrew Farkas, the chairman and founder of Insignia Financial Group, and other principals of that firm who were the original developers of the building in partnership with Transworld. Island purchased Insignia’s ownership interest in 1201 Lloyd at the time Insignia was sold to CB Richard Ellis in July 2003.CB Richard Ellis brokers Dan Swift and Lana Baldock worked on the development and lease-up of 1201 Lloyd and assisted CBRE’s Lou Lauman with the disposition. Other brokers in the sale include CB Richard Ellis brokers Dave Doupe, Raymend Duchek and Sudan Price.