A developer involved in the lease-buyback acquisition of Sprint Corp.’s sprawling global headquarters campus near Kansas City, Mo., plans a large-loan securitization to finance the associated $202.4 million first-lien mortgage.
According to Moody’s Investors Service, Occidental Management is sponsoring a single-asset, single-borrower transaction that will be backed by its fee simple interest in the forthcoming lease revenue from Sprint and third-party tenants of the 20-building campus in Overland Park, Kan.
The Wichita, Kan.-based developer closed on the acquisition this month through a two-year, floating-rate loan underwritten by JPMorgan Chase. The interest-only loan has a one-year extension option, Moody’s report stated.
The large-loan transaction, dubbed JPMCC 2019-BOLT Mortgage Trust, will issue notes with a balance of $192.3 million that will be dispersed among four classes of principal and interest term notes, plus two interest-only tranches. A $66.9 million Class A tranche has a preliminary Aaa rating from Moody’s.
The notes will be backed mainly by income from the lease buyback-arrangement from Sprint, which remains the signature tenant. As part of the sale, Sprint signed a long-term agreement to rent two million square feet of existing space, with over one million square feet tied to a 10-year lease at rates 20% below prevailing market rates, Moody’s estimates in its report.
Another 1.1 million square feet has been leased on a short-term basis at a steeper discount of 29% below market rates. But Sprint has the option of converting 605,101 square feet of the short-term lease space into longer-term use by agreeing to pay market rates, Moody’s report stated.
Sprint sold the property — which is 20 miles south of Kansas City’s central business district — at a “modest” price of $250.9 million, or $70 per square foot, in exchange for the flexible, below-market rent of $3.67 per square foot, according to the report.
Occidental Management will be using proceeds to make improvements to the office park that was initially constructed in 1998, including the addition of outdoor meeting space, a food truck court, an amphitheater “and additional lifestyle activities to make the property more inviting and attractive to new tenants,” Moody’s report stated. “In our opinion, the former property management under Sprint did not optimize the real estate.”
One of the potential new tenants is WeWork, which has been hired by Sprint to construct a new interior design changes the four buildings that are included in the long-term leases.
Moody’s noted Occidental had previously acquired a neighboring distressed property near the Sprint campus in 2014 for $21 million — and renovated a struggling office building with 48% occupancy into a modern facility that is now 96.6% leased with an appraised value of $119.7 million.
Sprint is using $25 million of its sale proceeds to upgrade its space.
The improvements, as well as the diversification of tenants, could safeguard the property’s long-term viability should Sprint vacate the headquarters at a future date. Sprint’s current 10-year lease does not permit cancellation, although Moody’s has taken into account the “uncertainty” of the outcome of a potential Sprint merger with rival carrier T-Mobile.
Sprint announced plans to sell its global headquarters site last December, but was maintaining current operations as is while talks were ongoing with T-Mobile and regulators. (T-Mobile itself has announced intentions to maintain dual headquarters for the two companies in Seattle and Overland Park if a T-Mobile-Sprint merger is approved.)
If Sprint agrees to convert the short-term space, that could add $3.8 million to the estimated $16.2 million in net operating income for Occidental.
Sprint built the campus between 1998 and 2001, and began leasing space to third-party tenants in 2009.
