GlobeSt.com: Just for the record, explain the strategy and what you feel makes it unique.

Schorsch: Our strategy from the beginning has been focused on a customer-centric model built around the banking and financial industry. Those are our primary tenants, as well as insurance carriers and investment banks. Acquiring assets within the financial industry allows us to address a unique set of needs. For example, they own the same type of real estate in every city across America. They own the same type of bank branches, office facilities, operation centers, credit-card and check-processing facilities, all of which are uniquely designed and positioned in the market. They are usually on Main Street in primary areas.

GlobeSt.com: Essentially, your model focuses on sale/leasebacks, correct?

Schorsch: Not always. Many of the sites are repositioned from one financial institution to another. For instance, we'll buy vacant branches when a bank is in a merger or when an institution analyzes its portfolio and goes through a culling process. They sell us the vacant building and we retenant it with another financial institution. If it's going to become a Krispy Kreme, that won't fit our model.

GlobeSt.com: So what does growth look like for AFR?

Schorsch: We expect our growth to continue at its current pace. In 2003, we acquired about $1.5 billion in real property. In 2004 we acquired a little more than $2 billion. Currently our 2005 acquisitions total roughly $650 million and more than 5.5 million sf. In all, we've grown about 600% over the past two years.

GlobeSt.com: How much of that is retail and how much is office?

Schorsch: It's about 15% to 16% branches and about 85% office and op-center facilities. About 86% of our revenue comes from net leases and about 88% comes from financial institutions.

GlobeSt.com: And how much is sale/leasebacks?

Schorsch: By far the majority of our occupancy is leased to the bank that sold us the asset. Overwhelmingly, about 35% to 40% comes currently from BofA, about 18% comes from State Street, about 18% comes from Wachovia. One of the unique things about our tenancy is that these leases are very long, averaging about 14.7 years, roughly two and half times the office sector.

GlobeSt.com: If the model is so solid, why haven't others jumped on the bandwagon?

Schorsch: We do see competition on individual large assets. I can't speak for others, but many in the industry are driven around a geography-centric model; they like this CBD or that market. For us, Bank of America or JP Morgan Chase selling 35 assets in 16 markets at once is just part of doing business. We're more customer-centric.

GlobeSt.com: I think if you were talking with Brett White or Bruce Mosler or any other major CEO, they'd say you've got it wrong on that score.

Schorsch: The reality is that if you're talking about 40 or 50 buildings in one transaction closing at the same time with a 45-day trigger, you'll see many other companies saying it's a tough transaction to do. And again, the bank's needs are very specific. We're not the only ones who are customer-centric, but we understand that the banks have particular needs and have to do transactions in a very specific way.

GlobeSt.com: How do their needs differ from that of any other office-space user?

Schorsch: In many cases, they require operating control over the properties. It may be naming rights or option terms that can extend out as much as 100 years, and it's a very integrated and complex process wherein they outline on a building-by-building basis what their requirements are. To put it into perspective, last year, between Sept. 21 and Oct. 1, we closed on 413 properties--covering 15 million sf--simultaneously.

GlobeSt.com: To what extent is there a disposition strategy?

Schorsch: Over the years, AFR has disposed of more than $200 million in properties, which is not a lot in comparison to our size, but we've disposed of 10% to 12% of the assets we've acquired. Typically, these are properties the bank has planned to exit that won't be occupied by financial services--the Krispy Kremes--so they no longer fit in our core strategy. Of the 3.5 million sf we've sold over the past seven quarters, the average total vacancy was 70%.

GlobeSt.com: Is there no fear that accompanies such a strict focus? Is there no fear that another unnamed and unforeseen crisis could befall the financial-services industry? No desire to diversify away from risk?

Schorsch: US banks have one of the strongest sets of balance sheets and reserves of cash of any corporate sector. They have very large asset pools, and their financial condition is one we monitor. We're not saying they're too big to fail but only that they're very strong financially. Plus, what they're doing with their real estate only improves those balance sheets, their liquidity and their ability to pay rent.

Also, be clear that we buy these assets typically at book or appraised value, so we're not overpaying. We have an average cost of about $100 per sf. There's that, plus we have tremendous geographic diversity even if we don't have tremendous economic diversity. In addition, we are 98% fixed-rate debt, and those debt levels are going down because we amortize all of our debt.

GlobeSt.com: I know it's a huge universe you're talking about, but it's still finite. Is there an end in sight?

Schorsch: We're looking at about a $100-billion market for bank-owned real estate that's on the balance sheet. That doesn't include the large insurance carriers or investment houses. Plus you have the space that's occupied by the financial institutions that they don't own; about 60% of all bank-occupied assets are not owned by the banks, and that totals as much as $130 billion. So we're looking at a $220-billion or $230-billion domestic market. We're not going to run out of horsepower.