The agreement calls for a sale price of $293 million unless the seller procures qualified leases for vacant space on or before May 1, 2006. The earn-out provision, which is based on a predetermined formula, shall not exceed $12.9 million, according to the agreement. Vacancy in the building is reportedly around 15% or about 60,000 sf.
Fred Beaubien, a senior director with Cushman & Wakefield in San Jose, wouldn't speak to the soundness of the deal because he did not know specifics, such as the cap rate. "The only thing I can tell you is there is a huge demand for quality real estate," he says. "Cap rates have ranged from 5.6% to 8% depending on the quality of the real estate and where the [in-place] rental rates are relative to market."
The property is located just south of Highway 101 on University Avenue. Tenants include DLA Piper Rudnick Gray Cary, which reportedly leases about 120,000 sf in the 2000 building; Bingham McCutchen, which reportedly leases 73,000 sf in the 1900 building, and; Dewey Ballantine, which reportedly leases about 57,000 sf in the 1950 building.
The seller is University Circle Investors. The LLC is believed to include an investment fund managed by Rockwood Capital of San Francisco; Joe Seiger of Vintage Properties and Catellus Development Corp.; Steve Meckfessel of SRM Associates; and Linda and Skip Law of Law & Associates.
The transaction includes the assumption of a $119.0-million fixed rate loan secured by the property in favor of Teachers Insurance & Annuity Association of America. According to the agreement, the transaction could have closed on Aug. 19 and must close before Nov. 11. A source at Wells tells GlobeSt.com that "there has been no transaction" related to the property.
Money has been moved around, though. According to the SEC filing, Wells REIT II has put up $15 million in earnest money, which is now in the hands of an escrow agent. As of earlier this month, the money is no longer refundable unless the seller defaults on its obligations.
Funds for the acquisition are being provided by proceeds from Wells REIT II's ongoing initial public offering of 600 million shares of common stock that began on Dec. 1, 2003. As of Aug. 24, 2005, Wells had received aggregate gross offering proceeds of approximately $1.7 billion from the sale of approximately 165.4 million shares in our initial public offering, and net proceeds of $1.4 billion, according to an SEC filing.
Wells REIT II's only other Northern California asset is Emerald Point, a 194,000-sf class A office building in Dublin, CA that was 100% leased to two tenants--SBC Advanced Solutions Inc. (75%) and Franklin Templeton Corporate Services Inc.(25%)--when it was acquired last fall for $44 million.
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