Essential Asset Demand at 'All-Time High'

Easterly Government Properties, a REIT focused on commercial properties leased to the US government, has formed a joint venture with one of the preferred leading global investors. 

The joint venture will serve as the investment vehicle for the acquisition of an anticipated 1.2 million leased square foot portfolio of 10 properties expected to close on a rolling basis by the end of 2023, which is 100% leased to the Department of Veterans Affairs, for a purchase price of approximately $635.6 million under predominately 20-year firm term leases.

Easterly’s partner will retain a 47.0% stake in the JV. Easterly will retain a 53.0% stake in the JV. Easterly will also receive asset management fees from the JV partner and be responsible for the day-to-day management of the properties.

The properties are in Chattanooga, Tenn.; Lubbock, Texas; Lenexa, Kan.; San Antonio, Birmingham, Ala.; Columbus, Ohio; Phoenix; Marietta, Ga.; Corpus Christi, Texas; and Jacksonville.

Expect More Cap Rate Compression in Essential Assets

Brian Corriston, Director in Stan Johnson Company’s Houston office, tells GlobeSt that demand for essential assets “seems to be at an all-time high, and government-leased assets fit that profile perfectly. History has shown, besides the credit backing these leases, these assets have an extremely high rate of renewals. 

“With the stickiness of a tenant such as the VA, relocating becomes even less likely, and that’s an incredibly attractive characteristic to investors. 

“One challenge I’ve seen, however, is that non-experienced investors sometimes have difficulty acclimating to the full-service structure of the lease, where the landlord has significant responsibility compared to net lease structures. 

“But as capital is readily available and interest rates remain low, this sector of the market should remain attractive and strong for the foreseeable future, and I expect we’ll continue to see cap rate compression in 2022, especially compared to pre-pandemic trends.”

Easterly Deal Includes Class A, Green Globe Facilities

The 100% build-to-suit VA Portfolio consists entirely of state-of-the-art, Class A Green Globe Certified facilities, either recently delivered or under construction. The JV closed on the acquisition of two of the 10 properties in the VA portfolio, which are currently operating. 

The JV expects to close on the acquisition of the remaining eight properties on a rolling basis by the end of 2023, in connection with construction completion and lease commencement dates. 

Once delivered, these facilities will be the newest VA medical care centers in six of the 18 Veterans Integrated Services Networks (VISNs), which six VISNs offer critical healthcare services for approximately 7.2 million veterans, or approximately one third of the entire U.S. veteran population. 

Each new facility will enable the VA to expand its current services in each local market by either replacing smaller existing clinics or supplementing existing facilities with more robust capabilities in a complementary location.