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Gramercy Property Trust inks deal to buy $73.4M industrial portfolio

  • The portfolio of four industrial properties totals about 1.6M square feet. Year 1 NOI is expected to be about $6.6M for an initial cap rate of 9%. The weighted average lease term on the properties is 6.7 years. The properties are located in Buford, GA, Ames, IA, Wilson, NC, and El Paso, TX.
  • Financing: GPT will assume four mortgages totaling about $45.5M with average remaining term of 3.6 years. The remaining $27.9M will be funded by issuing sellers limited partnership units in Gramercy's operating partnership, GPT Property Trust. These can be converted into GPT common stock on a 1:1 basis.
  • Source: Press Release
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Comments (4)
  • Johnson H
    , contributor
    Comments (8) | Send Message
     
    It sounds like this deal involved no cash out of pocket for GPT. Very nice transaction!
    21 Apr, 09:44 AM Reply Like
  • kadison
    , contributor
    Comments (170) | Send Message
     
    Could someone explain how those sellers limited partnership units work?
    21 Apr, 10:14 AM Reply Like
  • Captain America
    , contributor
    Comments (73) | Send Message
     
    Kadison,

     

    Many REITs use this limited partnership structure (also referred to as an UPREIT) to acquire assets from 3rd parties. This is a very attractive way for a 3rd party owning a property with a low basis as a result of past depreciation and/or appreciation to sell a property and defer taxes.

     

    The limited partnership is created, the 3rd party contributes its property into the partnership with NO tax consequences and receives limited partnership units, which can later be converted into stock. When the limited partnership units are converted into stock, it is a taxable event. The basis in the limited partnership units is the old basis in the real estate assets contributed. There is no step up in basis. This allows the 3rd party to control when to incur its future tax liability. It also allows the 3rd party diversification into a greater pool of assets and participate in any appreciation of the REIT stock.

     

    In certain situations, the REIT might put in place a lock up period (maybe 6 to 12 months) before the limited partnership units can be converted into stock and sold. This is typically done on very large transactions especially if it is significant to the size of the REIT. This is negotiated as part of the deal between the two parties.

     

    One other item to mention, the REIT keeps the same tax basis in the assets as what the 3rd party had in those assets. No step up in basis.

     

    Hope this answers your question.

     

    21 Apr, 06:50 PM Reply Like
  • kadison
    , contributor
    Comments (170) | Send Message
     
    Thanks Captain America, this helps.
    22 Apr, 09:11 AM Reply Like
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