Unisys deal shows strength of single-tenant market
The Unisys Building in Roseville fits the bill for what many investors find
alluring — a fully occupied building with a single tenant locked into a
long-term lease.
By Burl Gilyard/F&C Real Estate Writer |
June 3, 2004
The sale of the Unisys Building in Roseville for $26.08 million sends a signal
that the market for single-tenant property remains strong in the Twin Cities.
As office vacancy rates remain high, many investors are drawn to the allure of
fully occupied buildings that have a single tenant locked into a long-term
lease. The property, at 2470 Highcrest Road, totals 359,540 square feet, putting
the sale price at approximately $72.52 per square foot.
Roseville-based Meritex Enterprises Inc., a private real estate investment
group, had owned the facility since the company developed it more than three
decades ago.
The deal was the second-ever purchase for Stonewater Partners, a new company
based in New York and Los Angeles. CB Richard Ellis represented Meritex in the
transaction. The CB Richard Ellis team included First Vice President Steve Buss,
Executive Vice President Tom Holtz and Senior Vice President Lori Larson.
“This is our third significant single-tenant deal in Minneapolis this year,”
said Buss. “We’ve continued to see strong demand for these single-tenant
assets.”
Previously, CB Richard Ellis represented the sellers of the Golden Valley
Business Center, 6300 Olson Memorial Hwy. — a $42 million deal announced in
March. That 340,000-square-foot facility is 100 percent leased to United Health
Care. In that deal, Cornerstone Equities was the seller; UBS Realty Investors
was the buyer.
Additionally, CB Richard Ellis represented the sellers of the R.R. Donnelly
Distribution Center at 7500 Setzler Parkway in Brooklyn Park. The newly
constructed 120,000-square-foot facility, fully leased to R.R. Donnelly & Sons
Co., sold for $7 million in March. In that transaction, the seller was Duke
Realty; the buyer was Wells Capital Inc.
Buss said the Unisys property attracted many prospective buyers.
“We had a high level of interest. The majority of it was from people who are
focused on single-tenant properties,” said Buss, adding that the property
commanded a slight premium over its original offering price of an even $26
million.
“We sold it in the end for over our asking price,” said Buss. “It became a very
competitive bidding situation, where we had multiple people who really wanted
the asset.”
Unisys employs 1,200 people at the site, which includes a 71,000-square-foot
data center. The company’s current lease runs through the end of 2012. The Blue
Bell, Pennsylvania-based computer services company has changed with the times
since its days as computer pioneer Sperry Rand.
The building sits near the intersection of Interstate 35W and Industrial
Boulevard.
The original offering noted that the projected 2004 net operating income of the
property was $2,337,400, putting the cap rate at 9 percent.
Meritex Senior Vice President Daniel Williams said that his firm is
transitioning from office properties to multi-tenant industrial buildings.
“It’s really part of a corporate strategy that Meritex has to reconfigure our
real estate portfolio and also diversify our portfolio,” said Williams. “We had
recently secured the long-term lease renewal from Unisys, and with the appetite
that the capital markets had for single-tenant properties, it seemed like the
right time to make our move.”
Once upon a time, Unisys occupied all three buildings in the surrounding
business park complex. Meritex still owns a remaining two-building complex in
the area (totaling almost 700,000 square feet), which the company markets as
Highcrest Park.
Williams noted that eventually Meritex will likely be looking to sell those
buildings as well. “I don’t see us holding those buildings long-term because
they don’t really fit the profile of our target product,” said Williams. “But
we’ve got quite a few years of work to do before we’re ready to do that.”
CB Richard Ellis is also marketing the Meritex-owned Lafayette Park business
park in St. Paul. The four-building complex, totaling 675,000 square feet, is
100 percent leased to various agencies of the state of Minnesota. The properties
are being marketed without an asking price. The projected net operating income
for 2004 at Lafayette Park is just over $7 million.
Buss noted that an emerging field of investors — tenants-in-common (TIC) buyers
— were in the mix for the Unisys Building, but in the end didn’t win the race.
“We had TIC bidding activity on the deal, and we ultimately chose not to go with
a TIC,”
said Buss. “Compared to the TIC bidders that were involved, [Stonewater
Partners] were perceived as a higher quality buyer in terms of probability of
closing.”
Buss noted that the credit quality of the tenant was also a factor in the deal.
“They’re sub-investment grade credit,” said Buss of Unisys. “It’s a niche for a
certain segment of buyers. They get a little bit more yield to take the credit
risk.”
David Stade, a principal with Stonewater Partners, said his firm liked the
fundamentals of the property.
“We really like the Unisys credit a lot, good solid double-B-plus credit,” said
Stade. “The property itself, it has a good cash flow yield and good long-term
prospects. We think that the likelihood of them continuing in the facility is
reasonable.”
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