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ST. PAUL, MN-On behalf of a 1031 exchange made up of 32 investors, Los Angeles-based Griffin Capital has acquired the 362,230-sf US Bank Center here. The property, located at 101 5th St. East, was purchased for $53.2 million from Chicago-based Hearn Co. The building is leased to 33 tenants, with US Bank and Educational Credit Management Corp. occupying a combined 64% of the square footage.
JPMorgan Chase Bank, N.A. provided a $40-million first mortgage loan. Griffin Capital raised $19.97 million in equity from individual investors, which were primarily represented by Welton Street of Denver, Sigma Financial Corp., OMNI Brokerage Inc. and 1031 Exchange Options. The remaining funds will be used for fees and possible renovations.
David Rupert, COO of Griffin, tells GlobeSt.com that despite the building's 89% occupancy, the decision to acquire the Midwest asset was based on securing a higher internal rate of return for investors.
"This will be approximately 200 basis points higher than our California transactions, reflecting the differences in markets," Rupert says. "It's a slow, steady market in St. Paul, which is both good and bad. There's less competition so when tenants renew you don't have to pay as much. But you don't have the strong growth prospects you see in California; St. Paul tends to be less volatile."
With average tenant occupancies lasting more than 16 years, and US Bank occupying the building for 32 years, Rupert says the asset will be a 10-year hold for the company. "The building rent roll lays out well that way, and the most cost competitive form of capital is 10-year securitized debt," he tells GlobeSt.com.
The building was originally constructed in 1972 and underwent a $9 million renovation in 1995, including upgrading or replacing the mechanical systems, elevator system and common area finishes. The Hearn Co. has managed and leased the building since acquiring it in 1995, and will continue to provide property management services. Colliers Turley Martin Tucker will act as leasing agent.
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