The new State Farm Mutual Insurance regional headquarters building in suburban Dallas, Tex., serves as the utlimate collateral for a $452.3 million commercilal mortgage securitization.
The 2.2 million square-feet CityLine State Farm office tower in suburban Dallas is a Class-A, four-building complex in Richardson. The loan pays interest of 2.7866%, and no principal, for its seven-year. Proceeds re being used to help finance the $813.9 million acquisition of the building by partnership that includes a South Korean investment group as majority owner.
The transaction is split between four series of fixed-rate notes, including a $287.9 million Class A tranche carrying provisional triple-A structured finance ratings from Standard & Poor’s and Kroll Bond Rating Agency. A Class B tranche of notes totaling $63.9 million is rated ‘AA-’ by both firms while a $48 million series of Class C notes is rated ‘A-’ by each agency. The Class D notes at the bottom of the capital stack, sized at $52.5 million, is rated ‘BBB-’ by S&P, and ‘BBB’ by Kroll.
In addition, the CityLine Mortgage Trust deal includes a Class X interest-only series carrying 'AAA' ratings that is tied to the notional amount of Class A certificate balance.
State Farm, a Fortune 500 company with investment-grade corporate debt ratings, is renting all of the available office space of more than 2.1 million square feet, through a sale-leaseback arrangement.
The non-recourse, first-lien loan was was originated by Goldman Sachs and Deutsche Bank, which financed $294 million and $158.3 million of the loan, respectively. The borrower has no additional debt tied to the property, nor is it allowed to incur additional debt moving forward.
The loan sponsor is Corporate Properties Trust 1 SPE #1, the partnership between Seoul, South Korea-based Mirae Asset Global Investments Co. and Transwestern Investment Group. The partnership closed on the $813.9 million transaction last week - financed through he $452.3 million commercial mortgage as well as $347.8 million in cash and $22.3 million of sponsor equity from Transwestern.
CityLine is a Class-A, LEED Gold Certified office building that was developed between 2015 and 2016. It is already nearly fully leased (96.7%) with anchor tenant State Farm utilizing nearly all of the 2.2 million square feet of available space in the four CityLine office buildings. Overall, the building has 12 tenants – including more than 117,000 square feet for dining and retail space.
State Farm’s lease/buyback arrangement provides very favorable terms for partnership. The leases are for 20 years, overlapping the terms of the loan itself by 13 years. Then there’s the generous gross rent of $35.15 that is well above the market rate of $24.42 in the Richardson/Plano corridor – and includes rent steps that boost the rate by 2% a year that would bring the gross rent to $40 a square foot at the end of the lease term.
CityLine is just a portion of a larger six-million square feet, 186-acre master-planned development that will also include a regional headquarters building for Raytheon, a longtime corporate presence on Richardson’s north suburban high tech/telecom corridor.
Under terms of the loan agreement, the borrower can add (with lender consent) Property-Assessed Clean Energy (PACE) loans to finance energy retrofit projects.