Health Care Lane DST

9700-9800, Minnetonka, Hennepin County, MN 55343

Principal Balance (A-note): $126 million

Non-Recourse Debt: $152 million

  • Balloon Amount (A-note): $6,300,000
  • Coupon: 3.50%
  • Principal Balance (B-note): $26 million
  • Balloon Amount (B-note): $104,000,000
  • Yield: 7.08%

The opportunity is structured as a zero cash-flow investment with enhanced tax benefits, combined with the opportunity to acquire an institutional-quality office building. The property is owned by Healthcare Lane Propco, DST, a Delaware statutory trust (“Owner DST”).

Health Care Lane Property

The Property is located within the Opus 2 Business Park which is a 640-acre development and one of the largest employment center in Minnetonka with approximately 12,000 employees working within its boundaries.

INVESTMENT HIGHLIGHTS

To meet the needs of property owners seeking high leverage, low equity replacement property for their 1031 exchanges, Net Lease Capital Advisors, Inc. (“NLCA”) has identified and secured the land and improvements located at 9700-9800 Health Care Lane, a 635,000 SF Class A Office Complex in Minnetonka, Minnesota. The property is 100% leased to United HealthCare Services, Inc. (“UHS”), a wholly owned subsidiary of UnitedHealth Group (“UHG”). The recently executed lease has a 20-year primary term which commenced May 21, 2013.

Investment Structure

The opportunity is structured as a zero cash-flow investment with enhanced tax benefits, combined with the opportunity to acquire an institutional-quality office building. The property is owned by Healthcare Lane Propco, DST, a Delaware statutory trust (“Owner DST”). All of the beneficial interests in Owner DST are owned by Healthcare Lane Holdco, DST, a Delaware statutory trust (“Holding DST”), which permits sales of partial ownership interests, intended to qualify for Section 1031 and 1033 tax-deferred exchanges of real estate. The investment summarized herein is an investment in the beneficial interests in Holding DST.

Credit:

UHS, a wholly-owned subsidiary of UnitedHealth Group (estimated net worth of $31.7 billion, based on UnitedHealth Group Form 10Q for the Quarterly Period ended March 31, 2013).

Lease Terms:

  • Initial Lease Term of 20 years expiring May 31, 2033
  • 2% annual rental increases for the first 16 years of the Initial Lease Term, and every year during a renewal term
  • Absolute Triple-Net, with no landlord obligations during the Initial Lease Term

Debt:

  • $152 million non-recourse debt with a $126 million “A-Note” and a $26 million “B-Note” *
  • A-Note amortizes to $6.3 million after Initial Lease Term
  • B-Note accrues interest to a $104 million balance at the end of the Initial Lease Term. Accrued interest may be utilized to shelter a substantial portion of “phantom” income from amortization of the A-Note.
Debt Summary
Note that Wells Fargo Bank is the trustee and receives the rental payments directly from the Lessee and administers the debt service payments.
 
A-Note
Principal Balance: Approximately $126,315,230, as of June 1, 2013
Structure: Lease-Collateralized Pass-Through Certificates
Coupon: 3.50%
Repayment: Monthly Principal and Interest payments
Balloon Amount: $6,300,000
Term: 20 years
Maturity: May 15, 2033
Collateral: First Mortgage

Debt Summary

B-Note

Principal Balance: $26,264,722, as of June 1, 2013

Structure: Series B Zero-Coupon Bond, Subordinated to the A-Note

Yield: 7.08%

Repayment: Limited to any excess proceeds after the A-Note debt service is paid; Repayment expected to average approximately $88,000 per year over the 20-year Initial Lease Term

Balloon Amount: $104,000,000

Term: 20 years

Maturity: May 15, 2033

Collateral: Second Mortgage and Pledge of beneficial interests in the fee-holding Trust.

Lease Summary

Lease Structure: The lease is absolute-net with the Tenant being responsible for all costs and performance of all operations and maintenance, repair, and replacement of the property, including the roof and structural portions of the building.

Casualty/Condemnation: Tenant is obligated to rebuild in the event of a casualty with no abatement of rent and has no right to terminate the Lease save for a major casualty in the last 12 months of the Lease or a major condemnation. Condemnation insurance has been obtained.

Initial Lease Term: May 21, 2013 – May 31, 2033

Extension options: Four 5-year extension options, at the lesser of 95% of FMV rent or 102% of the previous year’s rent, with annual 2% increases each year.

PROPERTY OVERVIEW

Health Care Lane Property

Class A LEED-certified Trophy Office Campus. The Campus is comprised of twin 10-story office towers (the “9700 Building” and the “9800 Building”) connected by a ground-level glass enclosed walkway commonly known as “Main Street.”

UHG and its subsidiaries occupy approximately twelve properties throughout metropolitan Minneapolis. In the immediate area alone UHG and its subsidiaries own and/or lease (i) the subject property, UHS corporate headquarters (639,000 SF office) (ii) the UHG corporate headquarters (346,000 SF office) which is a short walk from the subject Property (iii) the UHG Group West Campus which is a 71-acre tract located a mile to the west, and (iv) the UHG Optum Campus (473,000 SF) located 5.5 miles to the south.

The Property is located within the Opus 2 Business Park which is a 640-acre development and one of the largest employment center in Minnetonka with approximately 12,000 employees working within its boundaries. Both the UHS and UHG headquarters are located within Opus 2.

ABOUT Net Lease Capital Advisors, Inc.

To meet the needs of property owners seeking high leverage, low equity replacement property for their 1031 exchanges, Net Lease Capital Advisors, Inc. (“NLCA”) has identified and secured the land and improvements located at 9700-9800 Health Care Lane, a 635,000 SF Class A Office Complex in Minnetonka, Minnesota. The property is 100% leased to United HealthCare Services, Inc. (“UHS”), a wholly owned subsidiary of UnitedHealth Group (“UHG”). The recently executed lease has a 20-year primary term which commenced May 21, 2013.