Government Properties Trust Acquires IRS Property

MARTINSBURG, WV-Government Properties Trust Inc. has acquired the nine-year-old Internal Revenue Service Annex here for $30.1 million. The annex contains 122,475 sf of net rentable space in three buildings that are 100% leased to the federal government for the next 10 years. The annex includes a single-story computer facility, a two-story office building and a separate building for utilities and emergency power generation. The buildings are set on a 25.26-acre site located within a larger secured campus compound that houses a government-owned 440,000-sf office building and computer complex. The lease agreement with the government is a modified net lease that includes a purchase option. Under such a lease, the tenant pays all operating expenses including utilities, janitorial services and supplies, repairs, replacement and maintenance while the property owner is responsible for real estate taxes, insurance and property management.GPT estimates the operating expenses for the property at $1.4 million, which includes $1.1 million for depreciation and amortization and $30,619 in reserves. The lease has a remaining firm term of 10 years at an annual rent of approximately $3 million.Simultaneous with the property acquisition, GPT closed on a $19.6-million mortgage on the property from PNC Bank NA. The loan will be interest-only for the first year. Equal payments of principal and interest commence in September 2006 at a fixed annual interest rate of 5.24%. The loan has a 10-year term, a 30-year amortization and a balloon payment due in August 2015.With regard to the purchase option, GPT says it has been advised “by experts in these matters” that the GSA has rarely, if ever, exercised such an option, that the procedures for doing so are cumbersome, that doing so is contrary to long-standing public policy, and that the GSA no longer is permitted to request such language in lease agreements. As such, company officials say they are currently in negotiations with the GSA to amend the lease by removing the option.