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Successful Re-leasing of the Time-Life Building

In the first quarter of 2004, Falcon purchased the Time-Life Building in Arlington, Virginia on behalf of one of its clients. This was a unique sale-and-leaseback transaction since the property was purchased from Time-Life, which was then occupying over 75% of the building. Time-Life, however, was planning to relocate and only agreed to lease back its space for one year. Since the lease for the tenant with the remaining 25% of the building expired in 2005, the purchaser of this building was faced with the necessity of re-leasing the entire property during 2005.

The Time-Life Building is situated in the Carlyle office park, a major development project that has become the new home of the U.S. Patent and Trademark Office. Falcon had recently purchased another property at this location, and knew the strength of the local office market. Accordingly, an agreement was reached to purchase the Time-Life Building at a price of $39.8 million. This was an all-cash purchase since it would have been almost impossible to obtain financing for a property that was going to become substantially vacant within a year. The client also put up substantial reserves to provide for the re-leasing of the building, including tenant improvement costs and leasing commissions. At the time of purchase, Falcon estimated that it might take 18 to 24 months to complete the re-leasing program.

With Time-Life scheduled to move out in 2005, Falcon retained a local leasing agent shortly after purchasing the building and begin an active program to attract tenants. As a result, early in 2005 Falcon completed negotiations for a five-year lease with Raytheon Corporation for close to 31,000 square feet of space. Within months this lease was expanded by over 7,500 square feet. Next, negotiations began with the existing tenant in the building, and this resulted in that tenant renewing its lease for five-years on 34,000 square feet. In the fall, an investment advisory firm signed a ten-year lease on 41,000 square feet, and in December the GSO, on behalf of the Patent and Trademark Office, signed a ten-year lease for 34,000 square feet. As a result, aside from a small retail area on the ground floor, the Time-Life Building achieved 100% occupancy within 12 months.

As the leasing program progressed in 2005, Falcon began negotiations with Eurohypo AG for a mortgage loan on the building. Agreement was finally reached for a $46 million loan that virtually equaled the original purchase price of the building plus the necessary re-tenanting reserves. The purchase of the Time-Life Building has turned out to be extraordinarily successful and will produce a very attractive annual yield to the client going forward. The property will henceforth be known by its address - 2000 Duke Street.

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January 2006