Gramercy Capital Corp. and Garrison Investment Group have closed a joint venture acquisition of a 115-property portfolio, for a total purchase price of $485 million ($87 per sq. ft.). The portfolio was acquired from an affiliate of KBS REIT Inc.
At closing, Gramercy and Garrison collectively capitalized the joint venture, on a 50/50 basis, with an equity investment of approximately $141 million, plus deal expenses. Gramercy funded its portion of the equity contribution with approximately $56 million in cash and the issuance of six million shares of common stock to KBS, valued at $15 million at the execution date of the purchase agreement.
The portfolio totals approximately 5.6 million sq. ft. and is comprised of office buildings, branch-office buildings and operations centers. Bank of America, N.A. leases approximately 81 percent of the total portfolio and total occupancy is approximately 88 percent. The portfolio consists of two sub-portfolios: The core portfolio, which consists of 67 assets, and the held-for-sale portfolio, which consists of 48 properties. The joint venture’s strategy is to retain a core net-lease portfolio of high quality assets leased to Bank of America in primary and strong secondary markets and sell non-core, multitenant assets.
The core portfolio consists of 67 assets located in 10 states. It is 98 percent occupied, with 96 percent leased to Bank of America under a 10.5-year master lease. For 2013, the core portfolio is expected to generate net operating income of approximately $27.2 million. At closing, the joint venture financed the core portfolio with a $200 million first mortgage.
The held-for-sale portfolio consists of 48 assets located in 13 states that are 68 percent leased to Bank of America. Concurrently, with the purchase of the portfolio, the joint venture sold two multitenant office buildings for net proceeds of approximately $144 million. The two buildings sold at closing were a 1-million-sq.-ft. multitenant office building located in downtown Chicago and a 406,000-sq.-ft. multitenant office building located in downtown Charlotte, N.C. Proceeds from these sales were used to reduce the capital contributions required by Gramercy and Garrison to fund the joint venture. The joint venture plans to sell the remaining 46 held-for-sale assets over the next 12-to-18 months for expected net proceeds of approximately $50 million. For 2013, the held-for-sale portfolio is expected to generate net operating income of approximately $3.2 million.
“We couldn’t be more excited about this acquisition,” Gramercy Capital Corp. CEO Gordon F. DuGan, said in a statement. “The transaction allows Gramercy to deploy a significant amount of capital into an attractive, high-yielding, net lease opportunity. Furthermore, Garrison has been a tremendous partner in closing the largest and most complicated deal in my 24-year career.”