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August 09, 2017  

Insurer's HQ Pitched as "Zero Cashflow' Play

A new corporate headquarters in suburban Chicago is being marketed as a “zero cashflow” deal valued north of $300 million — an unusually large offering of that type.

The 735,000-square-foot building, in Schaumburg, Ill., is fully occupied by Zurich American Insurance on a long-term lease. Debt service on a $333 million loan that a buyer would assume equals the property’s net operating income, creating tax advantages for investors. Stan Johnson Co., a brokerage that specializes in such trades and other net-lease deals, is representing the owner, Stonemont Financial of Atlanta.

The expected all-in pricing is unclear, but in a deal of this type, the seller typically seeks a premium based on the value of the tax advantages a buyer would receive. Zero-cashflow structures appeal to long-term investors such as endowments, wealthy individuals, family offices and trusts — but a deal of this size could also attract the attention of institutions.

The offering is aimed at buyers looking to execute a tax-deferred property exchange under Section 1031 of the IRS Code, or investors seeking to limit current income with an eye toward capturing capital gains down the road.

The loan, originated last year with an initial balance of $333 million, carries a 4.92% interest rate. It matures in 2037 and is fully amortizing. Zurich American’s triple-net lease runs until 2042 and calls for 5% annual rent escalations until 2037, to coincide with the loan’s amortization schedule. The remaining five years of Zurich’s lease will be rent-free. After that, there are four five-year renewal options that would be based on fair-market rent.

The 11-story complex, completed last year, was the largest single-tenant project in Chicago’s suburbs in more than a decade. Its distinctive design consists of two glass-clad rectangular blocks topped by a third at an odd angle.

The property is on 40 acres at 1299 Zurich Way, alongside Interstate 90, about 30 miles west of downtown Chicago and 11 miles from O’Hare International Airport. It includes a fitness center, a cafeteria, outdoor terraces, walking trails and two public transportation stops.

Zurich American, the U.S. arm of Switzerland’s largest insurer, moved to the property last year from a Schaumburg, Ill., complex that has been partially re-leased and is now on the market (see article on Page 8).