Monday, February 29, 2016

90 North Buys Saint-Gobain Campus in Philly Burbs

by Brian Rogal,
90 North Real Estate Partners and Arzan Wealth just purchased the Saint-Gobain North American Headquarters, a two-building, 65-acre corporate campus in suburban Philadelphia. And today, Daniel Cooper, the Chicago-based 90 North partner and head of its North American operations, tells that this latest acquisition fits well within the firm’s strategy to build up a portfolio of safe long-term investments in suburban office markets, a sector that these days frequently garners less notice than office properties in the nation’s hot CBDs.

“We wanted to target investment-grade, long-term tenants,” Cooper says of London-based company’s plan when in 2014 it opened a Chicago office, its first in the US. That way, if the economy went into a downturn, “we would not be stuck with a bunch of vacant space to fill.” And it was the suburbs which seemed to offer a host of properties in the sweet spot, with good prices and strong tenants.

Saint-Gobain, for example, a Global 200, S&P rated BBB-company, is the world’s largest building materials firm, and has agreed to a 15-year lease with several additional renewal options. “The rent they will be paying is just a blip on their North American income,” Cooper says.

That impressive profile is matched by the credit-worthiness of other tenants in 90 North’s growing US portfolio. It bought a class A building in Denver fully occupied by the FBI. And in 2015, 90 North was also part of a joint venture that bought the Lenovo Enterprise Campus in Raleigh for $127 million. In addition, it recently bought The Reserve at Deer Park, a 351,425 square foot class A office building in Deer Park, IL, a suburb of Chicago. Continental Automotive Systems Inc. occupies about 60% of the building, which 90 North plans to reposition as a multi-tenant facility.  

Furthermore, although their newest acquisition was first built in 1968 for an insurance company, the previous owners gave it a $40 million makeover just before Saint-Gobain occupied the complex, transforming it into the type of modern space favored by 90 North. “It’s like night and day compared to what was there before,” says Cooper. “I wouldn’t say it is a country club, but it was made very attractive for employees.” The complex is now designed to meet LEED Gold certification, and Cooper would not be surprised if it gets Platinum.

90 North started in the US with a goal to invest $750 million. Cooper says the very first thing they look for is an investment-grade tenant, and then they begin to analyze its location. But they do strongly prefer markets that can show some positive demographic trends. For example, they looked at one property that had a very promising tenant, but its location in Midland, MI ended up not meeting their criteria.

And although some might be surprised to see an investor put so much money into a Philadelphia-area property, Cooper says “when you look at this part of the market the numbers are very strong.”

Similar stories can be told about many big metro areas. He estimates that about two-thirds of large US leases occur outside the downtowns. “The point we’re trying to make is that the suburbs are not dead.”

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