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AT&T Consumer Services Headquarters

Falcon Purchases $77 Million Property in Morris Township, New Jersey

In late September 2004, Falcon Real Estate Investment Company, LP completed the acquisition on behalf of one of its clients of the AT&T Consumer Services Headquarters in Morris Township, New Jersey. This property is a three-story, Class A office building measuring 387,000 square feet (36,033 square meters) situated on a 52-acre (32.5 hectare) site. The property was originally constructed in 1985 as a build-to-suit for AT&T, which has occupied the entire building throughout this period. The building is situated on a picturesque campus-like setting complete with a distinctive entranceway and highlighted by water fountains. Morris Township is an important real estate market, approximately 35 miles from Midtown Manhattan. A great many major corporations have their headquarters in Morris County, including Aetna Insurance, Cendant, Merck, Adventis and Pfizer.

AT&T recently executed a 10-year renewal option of its original triple-net lease that will extend the term through August 2014. The company's rent during the first five years of the lease is set at $14.95 per square foot, which is relatively low compared to comparable buildings in the Morris Township area. The rent will increase after the fifth year by 10.4%.

The property was purchased from the Mack-Cali Corporation at a price of $77 million, equal to a going-in capitalization rate of 7.5%. This was also equal to a price of $199 per square foot. A $58 million, interest-only mortgage was provided by Credit Suisse First Boston at an interest rate of 5.35%. After allowing for debt service, the cash-on-cash yield to the equity investor will be 10.5%.

Kenneth Lorman, a Vice President of Falcon Real Estate in the company's New York office and responsible for real estate acquisitions in the northeastern states, commented, “We were attracted to this property by the quality of the building, its excellent location and by the tenancy of AT&T. The fact that AT&T was recently given a lower credit rating of BB+ certainly enabled us to obtain the property at a higher capitalization rate than we would have obtained if AT&T had kept its former rating. Taking into account the billions of dollars on the company's balance sheet, we believe that our investor is being more than adequately compensated for the slightly higher credit risk involved in this situation."

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September 2004