Alexandria Real Estate Equities has extended the ground lease on its seven-building Technology Square campus in Cambridge, Massachusetts, from an affiliate of the Massachusetts Institute of Technology for 24 years at a cost of $270 million.
The deal extends the term from January 2065 to December 2088, according to the San Diego-based firm’s second-quarter earnings report.
The agreement also brings the total Alexandria has paid MIT for the campus to $978.3 million. The real estate investment trust initially paid $600 million in April 2006 for a 90% leasehold interest in the 1.2 million-square-foot property, according to CoStar data. It acquired the remaining 10% in 2015 for $108.3 million, or about 63% more than the 2006 value.
In an unusual move for a lease, Alexandria is paying MIT the total price in two lump sum payments, one in the fourth quarter and the other in the first quarter next year. Typically, ground leases require regular rental payments over the entire lease term. After the expiration, the property reverts back to the ground lessor.
“We view this asset, Tech Square, as a generational asset located adjacent to MIT in Cambridge at the center of Main and Main with several important relationships located on the campus,” Marc Binda, chief financial officer of Alexandria, said on the company’s earnings conference call. “Second, since we acquired this mega campus in 2006, [net operating income] has nearly quadrupled over our ownership period. And third, even with the expected prepayment of rent, we believe this adjusts to a very attractive annual ground rent cost relative to market over the next 65 years.”
MIT did not respond to a request for additional information from CoStar News.
Alexandria said it would account for the payment on a straight-line basis over the lease term from July 2024 through December 2088, resulting in an incremental annual rent expense of about $3.6 million.
The payment also has caused the life science property REIT to reduce its projected earnings per share by 62 cents, from a range of $3.60 to $3.72 in April to $2.98 to $3.10 this month.