WASHINGTON, Feb. 3, 2011 -- CoStar Group, Inc. (Nasdaq:CSGP), commercial real estate's leading provider of information, analytic and marketing services, announced it has entered an agreement to sell its headquarters building at 1331 L Street, N.W. in Washington, D.C., for aggregate consideration of $101 million in cash to GLL L-Street 1331, LLC, an affiliate of Munich-based GLL Real Estate Partners GmbH. CoStar Group's headquarters will remain at the LEED-Certified, 169,429-square-foot building under a long-term lease to be signed with the new owner at closing. The building sale is scheduled to close later this month.
With the purchase and leaseback, a truly win-win scenario for both CoStar and GLL, the buyer will acquire an ultra-high quality asset located a few blocks from the White House and an investment that offers an attractive yield spread over U.S. Treasuries as well as the inflation protection that commercial real estate can provide. GLL has been a very active investor in the U.S. market, and has purchased a number of other trophy properties.
"GLL is a highly respected, hands-on owner who will be a great caretaker for our headquarters facility and will also benefit from this long-term investment in the highly sought after Washington D.C. office market," said Andrew C. Florance, CoStar founder and CEO. "We couldn't be happier to secure a long-term lease agreement with GLL as the new owner of this trophy asset."
CoStar acquired the two-year-old, Class A building through a wholly owned subsidiary on February 5, 2010 for $41.25 million or approximately $243 per square foot. The purchase price was one of the lowest paid on a per-square-foot basis for a new office building in Washington, D.C. in more than a decade. CoStar occupies the majority of the office space in the building after relocating its headquarters office from Bethesda, MD. Under the sale agreement, up to $15 million of the consideration will be held in escrow for the purpose of funding additional build-out and planned improvements for CoStar's space and for the common areas of the building.
With more than 1,000 researchers, economists, software developers and analysts focused solely on commercial real estate, CoStar has unmatched insight and knowledge of commercial real estate markets. By leveraging its own extensive data and forecasting capabilities to accurately predict the bottom of the most recent commercial real estate market cycle, CoStar was able to strategically time the purchase and sale of the building as well as predict the direction and timing of its recovery with a high level of confidence.
"The opportunistic acquisition of this building for our headquarters office was part of our larger strategy to create value through our occupancy of the building," explained Florance. "This sale will enable us to unlock the value of this formerly distressed property and provide an attractive return on our investment. At the same time, we were able to secure an efficient and environmentally responsible headquarters office for our Company at a tremendous downtown location for our employees, and create a valuable, fully leased long-term asset for the new owner."
As an incentive for CoStar to relocate its headquarters to the District of Columbia, the District's City Council approved $6.1 million in property tax abatements over a 10-year period, provided CoStar employs at least 100 additional District residents, among other stipulations. CoStar received a certification indicating that it has currently met the qualifications for the tax abatement. In addition, CoStar believes it may be eligible for additional incentives such as a five-year elimination of District corporate income tax and certain sale and use tax exemptions. To underscore the successful outcome for the District, CoStar anticipates creating 700 jobs at its D.C. headquarters location.
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Although the trophy properties in prime markets are already well into recovery, Florance said he believes that in every major U.S. market there are dozens of distressed, high quality buildings and dozens of large, creditworthy tenants, presenting opportunities to create similar arbitrage value-creation plays.
"I believe there are many other property types, geographic areas, and sub-segment opportunities in the commercial real estate sector that are still at varying stages in the cycle," said Florance. "The opportunity to know what properties are in each of those segmentations and cycles is why our customers use CoStar."
John Benziger, Senior Vice President of Lincoln Property Company, represented CoStar in the acquisition of 1331 L Street, NW. William M. (Bill) Collins, Executive Managing Director, Paul J. Collins, Executive Managing Director, John A. (Drew) Flood, Senior Managing Director, W. Judson Ryan, Senior Vice President, and James P. Cassidy, Senior Vice President of Cassidy Turley Commercial Real Estate Services, represented CoStar in the building sale. In an interesting aside, the idea for starting CoStar arose during a lunch Florance had with John Benziger and Bill Collins 25 years ago.
The building sale and leaseback agreements do not affect the Company's fourth quarter of 2010 or full year of 2010 results. The sale-leaseback will likely be accounted for as an operating lease and will result in additional rent expense in 2011. The 2011 expense impact is expected to be approximately $4.5 million to $5.0 million, which the Company will discuss in greater detail on its upcoming earnings conference call scheduled for February 24, 2011 at 11 AM EST.
About CoStar Group, Inc.
CoStar Group (Nasdaq:CSGP) is commercial real estate's leading provider of information, analytic and marketing services. Founded in 1987, CoStar conducts expansive, ongoing research to produce and maintain the largest and most comprehensive database of commercial real estate information. Our suite of online services enables clients to analyze, interpret and gain unmatched insight on commercial property values, market conditions and current availabilities. Headquartered in Washington, DC, CoStar maintains offices throughout the U.S. and in Europe with a staff of approximately 1,500 worldwide, including the industry's largest professional research organization. For more information, visit www.costar.com.
About GLL Real Estate Partners
GLL Real Estate Partners GmbH (GLL) is a Munich-based real estate funds management group. GLL was formed in 2000 by three senior executives of HypoVereinsbank, then Germany's largest real estate bank, in a joint venture with Italian insurance giant Assicurazioni Generali. GLL's funds under management now exceed €4 billion with investments across Western Europe, Central Eastern Europe and the United States. Investors with the Group include pension funds, insurance companies and sovereign entities. GLL's demonstrable investment track record combined with the extensive network of Generali and GLL's own distinguished Advisory Board, provides a unique deal sourcing capability which has enabled GLL to build a balanced portfolio of institutional grade assets. For more information, visitwww.gll-partners.com.