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NEW YORK CITY-Gramercy Capital Corp., a real estate investment firm that manages commercial mortgage-backed securities and other real estate debt, has inked a definitive agreement to acquire 115 office buildings from an affiliate of KBS Real Estate Investment Trust valued at $470 million, plus six million shares of common stock valued at $15 million, the company said in a prepared statement this morning.  

Under the deal, Gramercy is partnering with New York-based Garrison Investment Group, a middle-market credit and asset-based investor, to acquire the 5.6 million-square-foot portfolio from KBS, which is approximately 81% leased to Bank of America for a term ending in June 2023. The partners will own a 50% membership interest in the venture.

“This agreement begins the implementation of our strategy to create durable, recurring cash flows through the ownership of long-term leased properties,” says Gordon F. DuGan, CEO of Gramercy Capital Corp, who was recently appointed as CEO of the company following a strategic review in June. He says the portfolio was an opportunity to buy a high-quality office portfolio for $87 per square foot with a 10.9-year remaining lease term and an initial cap rate of 8.5%. “We are very excited to enter into this venture with Garrison Investment Group and will be working diligently with our partner to close the transaction during the fourth quarter of this year.”

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The portfolio was previously part of Gramercy’s realty division, which was transferred to KBS via a collateral transfer and settlement agreement in September 2011. According to previous company filings, Gramercy settled $549.7 million senior and junior mezzanine loans with Goldman Sachs, Citicorp North America and KBS Debt Holdings. The transaction required Gramercy to transfer beneficial ownership of substantially all of the entities and properties comprising the company’s Gramercy Realty division to an affiliate of KBS in exchange for a mutual release of claims among the company and mezzanine lenders.

The total portfolio is 88% occupied, and the projected net operating income is approximately $41.5 million, according to figures from Gramercy. The company also expects the JV to leverage the portfolio with approximately 55% to 60% mortgage financing. Simultaneously with the execution of the purchase agreement, a company affiliate and a Garrison affiliate funded as co-lenders a $39 million mezz loan to KBS, secured by cash collateral of $6 million and pledges of borrowers’ equity interests in certain entities owning various real estate assets.