Falcon Completes Three Purchases in September, 2002

Reflecting investors’ increased interest in U.S. real estate, Falcon Real Estate completed the acquisition of three properties for our clients during September, 2002. Jack Miller, President of Falcon, pointed out that the continued decline in mortgage interest rates has provided an excellent investment opportunity for investors in U.S. real estate. Mr. Miller stated, “Mortgage interest rates are at levels not seen in almost 40 years, and this results in very attractive cash-on-cash yields to the investor. With alternative investment classes appearing relatively unattractive today, the interest in U.S. real estate has increased substantially.”

Mr. Miller also stated, “We continue to look for other properties similar to the ones we have just purchased. Our clients are particularly attracted to the major markets in the United States, and prefer those properties that are leased to credit quality tenants, including office, retail and warehouse properties.”

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Carl Zeiss Building

The first property purchased in September was the Carl Zeiss Building in Dublin, California, just east of San Francisco. This is a single-story, 201,620 square foot (18,738 square meter) office/research and development building situated on a site of 13.12 acres (5.3 hectares). There are 17 years remaining on an original 20-year lease, with the lease guaranteed by the tenant’s parent company in Germany, the Carl Zeiss Stiftung. The rent increases by 13% every five years.

The purchase price for the property was $36 million, representing a going-in capitalization rate of 8.2%. The property was purchased by a group of U.S. and overseas investors, with Credit Suisse First Boston providing a first mortgage of $25 million. This was an interest-only, seven-year mortgage with an interest rate of 6.28%, providing the investors with a 10.1% cash-on-cash return.

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British Aerospace (BAE) Building

The second property purchased by Falcon was the British Aerospace (BAE) Building in Reston, Virginia, near Dulles International Airport. This is a newly constructed six-story building of 133,806 square feet (12,431 square meters) with a free-standing garage and surface parking for 480 vehicles. The property is situated on a 6-acre site (2.4 hectares). Under the ten-year lease signed by BAE, the rent will rise by 2.5% each year and BAE will be required to pay for all increases in operating expenses over the initial lease year.

The BAE Building was purchased at a price of $35 million representing a capitalization rate on first year net operating income of 8%. Credit Suisse First Boston provided a first mortgage of $24.7 million at an interest rate of 6.32%. The ten-year mortgage will be interest only for the first five years and will provide for amortization on a 30-year schedule during the final five years of its term. The cash-on-cash yield to the investor will average 9.85% over the first five years of the projected holding period.

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Gateway Corporate Center

Finally, Falcon was the investment advisor for the purchase of the Gateway Corporate Center in Diamond Bar, California, in the rapidly growing eastern portion of Los Angeles County. This multi-tenant property is comprised of two three-story buildings having a total square footage of 161,813 square feet (15,048 square meters). It is currently occupied by a number of high quality national tenants, including Travelers Insurance, Wells Fargo Bank and Square D. The purchase price for the property was $25 million, representing a going-in capitalization rate of 8.7%. Financing for this purchase was provided by Citibank, Los Angeles.

Falcon Real Estate will provide supervisory asset management for all three of these properties.


October 2002