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A look behind the REIT acquisition of the Chase building
By Mike Mrkvicka |
The 18-story Chase Bank Building, acquired Feb. 1 by the real estate investment trust spearheading the redevelopment of Downtown El Paso, is now under the management of a firm whose president sits on the REIT’s board of trustees.
The Borderplex Community Trust, as the REIT is called, signed a one-year building-management contract with Griffin Partners, a Houston-based real-estate investment company, according to a Griffin Partners spokesman. The contract took effect Feb. 1.
Griffin Partners’ president, Edward Griffin, is a member of the Borderplex Community Trust’s board of trustees, according to information filed with the Texas Secretary of State.
Griffin Partners also owns the Wells Fargo Plaza at 100 N. Stanton St., which has led to speculation in the commercial real estate industry that the Borderplex Community Trust will soon purchase that building, too.
The acquisition of the Chase building is a “prominent first investment” that demonstrates that REIT investors are strongly committed to rebuilding Downtown El Paso, said a commercial real estate agent who asked not to be named.
Texas warranty deeds give no indication of the sales price but the Chase building at 201 E. Main is appraised by the El Paso Central Appraisal District at $10.9 million.
The purchase along with the expected acquisition of the Wells Fargo building will give Downtown property owners confidence that the REIT is establishing a solid financial base and that the redevelopment scheme is working. This will encourage them to participate by selling their property to the REIT, the agent said.
The Chase building was actually purchased by a Texas limited liability company called “Borderplex 201 E. Main,” whose sole governing entity is identified in Secretary of State documents as the Borderplex Community Trust.
The Borderplex Community Trust was established in October under Maryland REIT law.
The reason for using a separate company to purchase the Chase Building is to protect the REIT from liability claims. Documentation at the Secretary of State’s office specifically states that even though the Borderplex Community Trust is the sole owner, it cannot be held liable for legally accrued monetary damages incurred by Borderplex 201 E. Main.
In addition to Griffin, the trustees of the REIT are William Sanders of Verde Realty, Meyer Marcus of shopping-center developer MIMCO, Jack Cardwell of Petro Shopping Centers, Adam Frank of River Oaks Properties, Scott Schwartz of the Mesa Group and W. David Bernard, an attorney with Scott Hulse Marshall Feuille Finger & Thurmond.
The REIT directors are a Who’s Who of the commercial real estate industry in El Paso, the anonymous agent said. As an aggregate the directors “have relationships with 95 percent of the property owners Downtown.”
Though the building at 201 E. Main has a new owner and new management group, it will retain its identity as the Chase building, said Robert Snow, president of JPMorgan Chase Bank’s El Paso region.
The bank recently installed its new logo on the blue banner that borders the top of the building. Snow said the new signage is unrelated to the building’s sale.
Now that it no longer owns the building, Chase entered a 5-year lease agreement with its new landlord, according to a memorandum of lease on file at the El Paso County Clerk’s office.
The agreement is for 71,793 square feet of space that the bank currently occupies. It expires Jan. 31, 2012. Chase has the option to extend the lease for four additional terms of five years each.
No monetary details were contained in the lease memorandum. But the market rate for leased Downtown office space runs between $13 and $14 per square foot per year, according to real estate agents. If that’s what Chase is paying, as some have suggested, the lease is worth about $1 million a year to the REIT.
Under other circumstances, the signing of a lease for 71,000 square feet of Downtown office space would be a banner-waving event in El Paso, said David Etzold, a commercial real estate broker with offices in the Chase building,
That’s primarily because there’s currently such little demand. “An office-space lease for as little as 5,000 square feet would be a big deal,” he said.
Stipulations
The Borderplex Community Trust was established under the direction of William Sanders, a nationally recognized expert in REIT formation who now makes El Paso his home. The REIT’s mission is to acquire some 150 contiguous acres of property in Downtown El Paso either through cash deals or trades for REIT shares. Once purchased, the REIT’s staff and subsidiaries will coordinate commercial and residential development on all its Downtown property in line with a master plan approved by the El Paso City Council. The REIT is expected to turn a profit for investors.
Though the REIT was established with the support of the El Paso City Council and though its goal of redeveloping downtown widely viewed as public spirited, terms in the lease agreement with Chase Bank leave no doubt that the Borderplex Community Trust is a private, profit-making organization comfortable with exclusionary practices that make financial sense for its tenants and unconcerned with politically correct niceties.
According to the lease memorandum, Borderplex promises the bank that it will not rent space in the Chase Building to drug-, alcohol- or substance-abuse programs, to abortion clinics or “to any other politically controversial use which could reasonably engender disruptive public outrage.” In addition, Borderplex will not rent to liquor stores, telemarketing services, other financial institutions or “any governmental entity or agency providing walk-in services directly to the public.”
Send comments on this article to tomfenton@elpasoinc.com.
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