Dividend Capital Buying $1.4B iStar Portfolio

DENVER-Dividend Capital Total Realty Trust Inc. has signed an agreement to acquire a portfolio of 33 office and industrial properties from New York City-based iStar Financial Inc. for $1.4 billion and has made a significant earnest money deposit on the portfolio, according to news releases and filings by the two companies. Denver-based Dividend Capital has "made an initial earnest money deposit of $25 million" for the portfolio, subject to completion of due diligence and obtaining sufficient financing. In addition to customary closing conditions, the agreement provides that, if Dividend Capital requests, iStar will provide Dividend Capital with up to $125 million in mezzanine financing after the Denver-based REIT has obtained a commitment for certain senior financing.

The 33 office and industrial properties are located in 18 geographic markets in the US and total approximately 11.8 million net rentable square feet. Included are 22 office properties in 12 geographic markets totaling 5.1 million net rentable square feet and 11 industrial properties in 10 geographic markets totaling 6.7 million net rentable square feet. The properties included in the portfolio are primarily leased to large corporate tenants under triple net leases.

According to iStar, it is selling the properties through two purchase and sale agreements. The transactions, expected to close in the second quarter of this year, would add to a Dividend Capital portfolio that included 79 properties totaling approximately 13 million square feet in 27 geographic markets as of Dec. 31. Dividend Capital is acquiring the iStar portfolio via a wholly owned subsidiary, according to the company's SEC filings.

According to iStar's latest quarterly financial report, at the end of the first quarter the company held 42 assets, representing a gross book value of $1.4 billion, which had previously served as collateral for certain of its loan assets. Of these assets, $829.9 million were classified as REO and considered held for sale based on management's current intention to market and sell the assets in the near term. The remaining $542.7 million were classified as real estate held for investment, based on management's current strategy to hold, operate or develop the assets over a longer term.