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Falcon Acquires Properties in Minneapolis and Phoenix

The two most recent purchases by Falcon Real Estate Investment Company, LP were properties located in Minneapolis, Minnesota and Phoenix, Arizona. These were the first purchases by Falcon in both of these cities as the company’s acquisition staff continues to expand its coverage of the top real estate markets in the United States. Minneapolis and its neighboring city St. Paul are referred to as the Twin Cities and constitute the principal metropolitan area in the north-central U.S. Phoenix in the desert southwest has been one of the fastest growing cities in the country for the past ten years.

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Cargill Office Building

In August, Falcon closed on the purchase of a very attractive 148,220 square-foot (13,775 square meter) six-story office building situated in the Minnetonka Corporate Center, in suburban Minneapolis. The building is leased to Cargill, Inc. which was formed in 1865 and is the largest private company in the United States. The Cargill Office Building in Minnetonka is part of what Cargill refers to as the Crosstown Campus, a four building, office complex occupied by a number of Cargill entities. This campus is approximately a 10-minute drive from the company’s World Headquarters. The subject building is situated in the I-494 submarket, one of the largest in Minneapolis with almost 25% of the city’s overall base of office development.

Cargill signed a 10-year net lease in 1998 that became effective upon completion of construction of the building and this lease extends through November 29, 2008. The net rent is currently $14.75 per square foot and it increases to $15.75 per square foot in November 2004, and to $16.75 in November 2006. Falcon negotiated the purchase at a price of $25,950,000 equal to a going-in capitalization rate of 8.7% and a price per square of $175. Bank of America provided a first mortgage loan of $18,000,000 equal to 69% of the purchase price and the HSBC Amanah Finance division participated in the purchase as an equity investor.

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Honeywell Building

In October Falcon completed the purchase of the Honeywell Building in Glendale, Arizona, a suburb of Phoenix. This property is a 181,596 square foot (16,876 square meters) flex office building that was completed in two phases. Phase One totaled 130,000 square feet and was finished in 1991 and a 51,596 square foot addition was completed in 1998. The building is constructed on a six-acre site located immediately adjacent to a Honeywell owned manufacturing facility. The subject building is 100% leased to Honeywell International Inc., which is rated “A” by Standard & Poor’s, and there are five years remaining on an original seventeen-year lease. The site is used by Honeywell’s aerospace division for the research and development of small jet and helicopter instrumentation equipment. The operations in the subject property are integrated with the operations in the adjoining Honeywell owned facility.

The Honeywell Building was purchased at a price of $19,400,000 representing an initial capitalization rate of 9.3%. An interest-only, first mortgage loan of $13,400,000 was provided by Bank of America at an interest rate of 5.35%. The mortgage loan represented 69% of the purchase price. The equity in the transaction was provided by U.S. and overseas investors, all of whom will receive annual distributions of 10%.

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Announcements
November 2003