$110M Seals Conexant Sale-Leaseback

The sale was unusual in that it was executed under terms of a synthetic lease that Conexant signed with Deutsche Bank AG in 1998, which included an option to buy or sell the twin towers upon the expiration of the lease. Deutsche Bank received a payment of approximately $60 million at closing, also under terms of the synthetic lease.

The 10-story, class-A property, also known as the Conexant and Mindspeed Towers, consists of two interconnected office towers that house Conexant and Mindspeed Technologies Inc. Conexant will continue to occupy the west tower under a lease with KBS, and Mindspeed will continue to lease the east tower from Conexant.

The transaction was brokered by Kevin Shannon, Scott Schumacher, Michael Moore and Paul Perkins of the South Bay office of Grubb & Ellis in Los Angeles County; Lonnie Riddle of the firm's Anaheim office; and Bob Griffith and Jon Nesbitt of the firm's Newport Beach office. The Grubb & Ellis brokers represented both the buyer and the seller.

The sale was a two-step process. In the first step, Conexant bought the property from Deutsche under terms of the synthetic lease, which had been signed in August 1998. Conexant then immediately sold the property to KBS and leased the west tower in a lease that runs through June 26, 2008. Conexant has four five-year options to extend the term of the lease for all or a portion of the west tower and a two-year option to extend the term of the east tower lease.

Mindspeed, a former subsidiary of Conexant, occupies its space in the east tower under a sublease with Conexant that also runs through June 26, 2008. The leases are triple net, but the building owner shares in certain capital costs and other expenses. The beginning base rent rate is $1.70 per sf, with annual rent increases of 3% in both towers through the end of the initial 10-year term.

The Conexant property is the third within the Orange County Airport Office Market that Newport Beach-based KBS has acquired in the past eight months. The others are 1401 Dove St., which it acquired in August, and 4590 MacArthur Blvd., which it bought in October.