Attractive Deals in Today’s Real Estate Market

Investors going into the U.S. real estate market today need to give careful attention to the risks and rewards that are involved in the properties that they are considering purchasing. Falcon Real Estate believes that the best opportunities lie in those properties that entail a small amount of credit or leasing risk, since these properties are generally available at relatively attractive prices. We have selected the following four properties that we would currently recommend as being examples of excellent long-term investments available in the U.S. real estate market today:

1. 1. Honeywell Industrial Building, Phoenix, Arizona
2. 2. Interchange Center Single-tenant Office, Tampa, Florida
3. 3. 1901 Main Street Multi-tenant Office, Irvine, California
4. 4. Gresham Square Shopping Center, Portland, Oregon

In all cases, we believe that these properties are in locations that have strong underlying population growth trends, favorable economic fundamentals and a good existing public infrastructure. Not only are the locations good, but we believe that each of these properties can be obtained at relatively reasonable prices in today’s marketplace.

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Honeywell Industrial Building:

This property is a 181,596 square foot (16,876 square meter) flex office building located in suburban Phoenix, Arizona. The building’s concrete panel construction was completed in two phases. Phase One included 130,000 square feet and was finished in 1991, and the balance of the property, 51,596 square feet, was completed in 1998. The building is 100% leased to Honeywell International Inc., an investment grade tenant with an “A” credit rating. The site is used by Honeywell’s aerospace division for the research and development of small jet and helicopter instrumentation equipment.

Honeywell originally signed a 17-year lease in 1991 and there are now five-years remaining on that lease. The lease was amended in 1998 at the time of the building’s expansion. The tenant has options either to purchase the building or to renew its lease. We believe that one of these options will be exercised due to the fact that the operation in the building is complementary to that of a Honeywell-owned facility immediately adjacent to this site. We project that this property can be bought at a price of $19 million to provide a going-in capitalization rate of 9.5%. After providing for debt service on a 5% interest-only mortgage, as well as allowing for a substantial re-leasing reserve, the cash-on-cash yield is anticipated to exceed 12%.

Interchange Center Office Building, Tampa, Florida

This is a 130,522 square foot flex office building located in Tampa, Florida. The facility is currently 100% leased to a subsidiary of Progressive Insurance, the third largest auto insurer in the United States. The lease term is for seven years with annual rental escalations of 3%. The property is situated on approximately 7.87 acres of land. The building features tilt-wall construction, 28-foot ceiling heights and exceptional exterior architectural features. The property is unique as it serves as a call center and a state-of-the-art claims training center. The tenant has invested a substantial amount of its own money to upgrade the facility. The building was completed in December 2001. The property is located in the Interchange Center Park, a 70-acre, mixed-use business park directly across from Progressive Insurance’s Regional Headquarters office building in the East Tampa market.

Founded in 1937, Progressive Insurance is the nation’s third largest auto insurer with over $9 billion in net total revenues and well over $660 million in net income per year. Although the parent company is rated A+ by A.M. Best, the insurance rating agency, the parent is not on the lease and the actual tenant is unrated. We believe that the Progressive Insurance Facility can be purchased at a price of $9.4 million. This is equal to a going-in capitalization rate of 8.8% and a price per square foot of $72. After allowing for debt service and providing for a re-leasing reserve, we estimate that the cash-on-cash yield will exceed 12% on a projected seven-year holding period.

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