Select Income REIT Closes $188M Acquisition of 820 KSF Office Property in Suburban Chicago

By Barbra Murray, Contributing Editor

Select Income REIT has gotten its hands on a premier 820,000-square-foot office asset in suburban Chicago, courtesy of a sale-leaseback transaction with Tellabs Inc.  SIR acquired the headquarters property, located in Naperville, Ill., in a $187.5 million transaction, and concurrently closed a lease agreement with Tellabs that will allow the optical networking business to stay put at 1415 W. Diehl Rd. for 15 years.

Sited approximately 30 miles west of Chicago, 1415 W. Diehl has been home to Tellabs since the company erected the five-story building at a cost of $72.8 million in 2001.

SIR relied on cash on hand and borrowings under its unsecured revolving credit facility to finance the property’s acquisition, which is in line with the REIT’s strategy of enhancing its portfolio in the continental United States. The majority of SIR’s holdings, a full 17.8 million square feet of its 26.1 million-square-foot collection of assets, is sited in Hawaii; the Lower 48 are now a top priority as well. However, well-tenanted, high-quality properties are not so easy to come by in the current real estate climate.

“Competition for net-lease properties has intensified over the past 18 months or so,” David Blackman, president of SIR, told Commercial Property Executive. In this environment, it’s nice to have friends–and money. “In addition to leveraging our relationships to uncover opportunities, we try to take advantage of our strong balance sheet and our access to capital,” he added. “We tend to focus on transactions where these competitive strengths are true advantages like larger and longer-duration leases.”

SIR has not been shy about capitalizing on its advantages over the last several months. October brought the $18 million purchase of a 100,000-square-foot office building in a sale-leaseback deal with Baxter Healthcare Corp. And with December came the $64.9 million acquisition of two net-leased office properties totaling 250,000 square feet in San Jose, Calif.

“Thanks to our strong national presence, we do not have to limit ourselves to certain geographies. This is particularly useful given the increasingly competitive nature of the net-lease space,” said Blackman.

But SIR’s buying formula is not as simple as just picking up Class A, net leased properties. Blackman added, “We are also selective in the acquisitions we pursue and are not afraid to walk away from a transaction that does not enhance value for our shareholders.”