WORLD PROPERTY CHANNEL ®

In what is believed to be the largest commercial deal of its kind this year, New York City-based iStar Financial Inc. (NYSE: SFI)  has sold a nationwide portfolio of 32 corporate tenant-leased office and industrial properties totaling 11.3 million square feet of net rentable space.

Denver, CO-based Dividend Capital Total Realty Trust Inc. bought the assets for $1.35 billion.

"We believe this is the largest real estate transaction completed this year,"  Dan Cashdan, head of investment banking at HFF Securities LP, said in a prepared statement.

HFF, an affiliate of Holliday Fenoglio Fowler, advised iStar on the transaction.

Included in the acquisition are 21 office properties located in 10 markets totaling about 4.6 million net rentable square feet and 11 industrial properties located in nine markets totaling about 6.7 million net rentable square feet.

"We are extremely pleased to acquire this high-quality portfolio of office and industrial buildings," Guy Arnold, president of Dividend Capital Total Realty Trust, said in a prepared statement.

"We feel the acquisition is a valuable addition to our portfolio, further diversifying our commercial real estate holdings by property type, tenant base and geography."

The portfolio is about 99% occupied. The majority of the properties are leased to single tenant corporate users, with a weighted remaining lease term, based on base rent, of about 7.6 years.

At closing, about 50% of the net operating income is expected to be generated from tenants with an investment grade public credit rating.

Additionally, about 95% of the portfolio's tenants are public companies, offering transparency into tenant operations and financial statements.

Select tenants include Amazon.com, Sybase, FedEx, Unisys, Goodyear, Nokia Siemens, Avis Budget, DirecTV and Google, among others.

"We believe the contractual cash flow of the portfolio is stable due to quality tenants and the long-term nature of the remaining lease terms," said Greg Moran, chief investment officer for Dividend Capital.

"Additionally, the portfolio contains a substantial amount of corporate and regional headquarter locations and distribution facilities that are critical to the ongoing operations of each tenant's respective business platforms, further supporting our belief in the sound fundamentals of the properties in the portfolio."

Dividend Capital Total Realty Trust secured about $859 million of senior and mezzanine financing on the portfolio with a combination of fixed and floating interest rates. The weighted average interest rate of these loans is approximately 5.4%.

"We were able to obtain very attractive financing on the portfolio that we believe will prove to be accretive to our investment," said Lainie Minnick, vice president of finance for Dividend Capital Total Realty Trust.

"The financing gives us flexibility in our business plan moving forward, and was enhanced by the stability of the properties in the portfolio as well as the strength of our corporate balance sheet."

"Starting at the onset of the credit crisis in late 2007, we accumulated a significant amount of buying power explicitly to target an opportunity like this portfolio in a more attractive pricing environment," said Arnold, the REIT's president.

"We couldn't be more pleased to own these properties. We believe that the addition of this portfolio will be accretive to our funds from operations (FFO) and we also believe it greatly complements our existing assets under management, creating a well-balanced and diversified investment vehicle."

Dividend Capital Total Realty Trust Inc. invests in a diversified portfolio of commercial real estate assets. Arnold said that as of June 25, 2010, and including the national office and industrial Portfolio acquisition, the company owns 111 properties totaling about 24.3 million square feet in 35 geographic markets.

iStar Financial provided Dividend Capital with mezzanine loans totaling about $106 million as part of its financing for the transaction.

Janet Krolman

The mezzanine loans bear interest at an initial blended rate of 8.8% per annum and have effective maturities of three and five years. The balance of the purchase price was received in cash.

iStar expects to use the proceeds from this transaction to repay a $925 million loan secured by the properties being sold, as well as for general corporate purposes.

HFF Securities' Cashdan, senior managing director Doug Bond and director Mike Joseph, CFA, led the team advising iStar on the sale.

Greg LaBine

Working  for Dividend Capital, HFF executive managing director John Fowler and directors Janet Krolman and Greg LaBine of HFF Boston arranged about $750 million of senior secured acquisition financing through a combination of fixed and floating-rate facilities.
 
"We are pleased to have assisted Dividend Capital in arranging a creative financing solution for the transaction," said Fowler.  "The parties worked diligently to complete the financing transaction on attractive terms in a narrow time frame."
 

---