Actuant-Leased Plant Shops for Owner

(Read more on the industrial market.)

LANCASTER, PA-Princeton, NJ-based Sovereign Investment Co. has put the 70,724-sf industrial building at 1811 Rohrerstown Rd. on the sales block at an asking price of $6.2 million, which translates to $87.66 per sf. Sovereign acquired it within the past 60 days as part of a multiple-property sale-leaseback portfolio from Butler, WI-based Actuant Corp. Two of the other properties, which are located in the Midwest, will also go up for sale.

“Sovereign’s business plan is to buy properties in bulk at wholesale prices under sale-leaseback arrangements and then sell them at full-value prices,” says Tom Gorman, a senior associate in the Philadelphia office of Marcus & Millichap. He and Matthew Gorman, an associate in the same office, are marketing the property.

The building, which is located on 18 acres, was completed in 1988. Actuant’s Maxima Technologies division has just signed a 10.5-year, triple-net lease for the entire building, and the agreement includes four options to extend. “The current rent rate is $5.90 per sf, or $418,000 for the first year,” Gorman tells GlobeSt.com, “and the lease agreement calls for a 3% increase every other year, including during the extension options.”

The asking price represents a cap rate of 6.8%, which Gorman acknowledges, “is aggressive going in, and the price is on the higher end of per-sf numbers for this area. But, with a strong public company as the tenant, and a 3% bump every other year, this provides secure, long-term stable cash flow. Under the triple-net lease, the tenant is responsible for any upgrades to the roof and structure,” he adds.

Gorman, who has handled numerous sales of properties leased to drug stores, including Walgreen’s and CVS, says “this is a good alternative to the drug store deals that have been so popular with 1031 exchange buyers. The drug store properties typically are stronger still on cap rates and don’t have rent increases.”

Actuant, which supplies electrical and industrial tools, is a public company rated BB by S&P and is experiencing a 23% annual increase in sales. The Maxima division has just obtained a large contract with a manufacturer in China. While Gorman is marketing this property singly to any type of investor, he says it could be combined with the Midwest properties Sovereign acquired from Actuant and sold as a portfolio.