One of the biggest changes to the Triangle real estate landscape over the past five years has been the type of investors who are taking a hard look at buying assets here.
Perhaps no recent deal offers a better example of this transformation than 90 North’s acquisition earlier this month of Lenovo’s 67-acre campus in Research Triangle Park.
A London-based firm that launched four years ago, 90 North tailors its investment strategy to institutional investors who feel constrained by typical real estate funds.
“They’ve been in funds before and they feel like they don’t have as much control in a fund,” said Dan Cooper, a partner with 90 North based in Chicago. “Our mandate is create single-purpose entities so they buy in one building. They know that’s their investment.”
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Since forming, 90 North has acquired about 15 properties for just under a billion dollars. It typically targets deals that price between $40 million and $150 million.
The Lenovo campus in Research Triangle Park, which 90 North bought for $127 million, is just the third property the company has acquired in the U.S. The company, which acts as an investment adviser and real estate professional for its investors, recently opened an office in Malaysia and also has a strong presence in Dubai and the Persian Gulf.
Although the Triangle may seem like an unlikely market for 90 North to make a major bet, Cooper said it shouldn’t come as a surprise.
He noted that a Jones Lang LaSalle report issued last year on life sciences clusters ranked the Triangle as the fourth-best market in the U.S., behind only Boston, San Francisco and San Diego. The JLL report ranked regions based on a number of factors, including the existing concentration of life sciences workers and the potential for future growth, venture capital funding, government funding and patents.
“There’s a lot of infrastructure there and great ability to grow and new product coming online,” Cooper said of the Triangle. “With the education and lifestyle, I think it’s going to continue to attract people particularly as this sector grows.”
Lenovo’s RTP campus was once the corporate campus of Sony Ericsson. After Sony Ericsson departed for Atlanta, many wondered what would become of the campus’ out-dated buildings, particularly given that there appeared to be few if any tenants able to swallow that much space.
But then Lenovo announced its plans to acquire IBM’s low-end server business. Since many of that unit’s employees are based in the Triangle, Lenovo needed a large chunk of space to accommodate them.
Rubenstein Partners and Grubb Properties, which paid $26 million for the campus in December 2013, then went about stripping the buildings down and renovating them to meet Lenovo’s needs.
“They just spent so much money on the infrastructure of the building,” Cooper said.
Former IBM employees, who were used to bundling up in their old R&D offices, now are able to ditch their coats thanks to a state-of-the-art cooling system in the buildings.
“They’re just thrilled with how nice it is to work there,” Cooper said.
Lenovo signed a 13-year lease to occupy all 450,000 square feet of the campus, with plans to add an additional 30,000 square feet. The campus also has the room to build an additional 100,000 square feet.
Cooper said 90 North believes it can, conservatively, get in excess of an 8 percent annual return on its money in addition to any appreciation that happens over time – and this for a property that is very stable given the quality of the tenant. Given how yield-starved investors are these days, the Lenovo deal was one 90 North couldn’t pass up.
“It’s a great play,” Cooper said. “With rates as low as they are it’s a great time for us to buy.”