IPC Acquiring Houston, Memphis Assets for $129M

The larger of the two properties being acquired is first Loop Central, is a 575,000-sf three-building complex located in the Galleria submarket of Houston. The property is 83% leased. Tenants include Litton Loan Servicing, Universal Ensco, HHS Texas Management and the University of Phoenix.

Due to the improving Houston office market, significant enhancements to the adjacent freeway system and the construction of a new toll road with direct access to the buildings, the property has considerable leasing momentum and offers potential upside to the REIT, says IPC chief financial officer Gary Goodman.

"The potential upside comes from the fact there is close to 90ksf in vacant space in the building," Goodman tells GlobeSt.com. "Because of its location, what's happening in office market and the nearby transportation infrastructure, we have a good feeling of comfort about leasing all or part of that space in the near future, which would give us upside in rent, cash flow and the value of building."The other property, Crescent Center, is a 339,000-sf nine-story office building in Memphis that is 97% leased. Tenants include Wachovia, Goldman Sachs, Perkins Restaurants, Butler Snow & O'Mara, Stanford Financial and FedEx Trade Networks. IPC says the building is the premier address in the city and commands the highest rental rate.

The upside in Memphis also lies in leasing. Goodman says that with 42 tenants in the building, there is continuous roll every year. That is a good thing in this case because the class A east-end market in Memphis has a tight 6% vacancy and Crescent Center is a sought after address, which means IPC will be able to demand higher rents. "We're already starting to have tenants ask us about early renewals so they can lock in more favorable rates," he says.Bank of America's $89 million of acquisition financing came in the form of two fixed-rate 10-year loans at an interest rate of about 5.2%. The balance will be funded from IPC's acquisition line of credit.

The acquisitions are expected to increase the REIT's distributable income by approximately $4.6 million on a 100% basis before interest on the acquisition facility and before deducting non-controlling interest.

IPC US REIT focuses mostly on class A office space in the United States. It has an ownership interest in 11.3 million sf in 39 buildings. IPC gives shareholders an 8% per annum return on their investment, says Goodman. In the case of this acquisition, that is being achieved by buying at a 7% capitalization rate and borrowing 69% of the money for the acquisition at a 5% interest rate, says Goodman.