Wescom Sells HQ for $59 Million in Lease-Back Deal
CUSO pays $59 million to buy a building to be leased by a California credit union.
A group of credit union investors that bought Wescom Central Credit Union’s Pasadena, Calif., headquarters for $59 million has additional funds to bid on other lease-back deals.
The buyer, CUSO Realty Investors One (CRIO), a Los Angeles CUSO owned by 20 credit unions, used $29 million in equity and a $30 million loan for the purchase, which closed Feb. 18.
Wescom ($5.2 billion in assets, 205,636 members as of Dec. 31) had owned the headquarters since 1986. By selling it, Wescom added about $50 million in capital and increased its capital ratio from 7.79% to over 8.5%.
CU Capital Management (CUCM), which is also a Los Angeles-based CUSO, managed the fundraising, bidding and purchasing process on behalf of the buyers. It has teamed up with NACUSO Business Services of Grand Rapids, Mich., to promote future lease-back deals.
Guy Messick, CEO of NACUSO Business Services, announced the Wescom sale during a “Studio Lounge” session at CUNA’s GAC held from Feb. 27 to March 3.
Messick said lease-back deals have become particularly attractive because of a change in accounting rules that took effect this year that allows credit unions to recognize gains from such sales immediately rather than amortizing them over time.
“It became very advantageous,” Messick said at GAC. “It’s a quick way to get capital into a credit union by selling it and leasing back the property.”
Messick said at GAC that other deals were expected within a few months.
NACUSO Business Services and CUCM also issued a news release on the sale Monday.
The news release said CRIO has more than $109 million in investment commitments from 25 credit unions to fund additional credit union lease-backs. CUCM, as manager of this network, “is in active negotiations to assist one of the network CUSOs to purchase another large credit union office building.”
And it said the network is in “exploratory discussions” with other prospective sellers.
Loans used for purchases will be will be participated out to multiple credit unions.
The Wescom lease is triple net with Wescom maintaining full operational control and maintenance of the property, and picking up all building related costs, including structural repairs.
Triple net deals typically require the tenant to pay real estate taxes, building insurance, and maintenance in addition to rent and utilities. They are usually employed in commercial leases to make the properties safer and more attractive to investors.
CUCM said the projected annual returns to the credit union investors from the Wescom transaction over the next 15 years are between 5% and 7%, payable quarterly beginning in 2023.
CUCM is co-owned by Maps Credit Union of Salem, Ore. ($1.2 billion in assets, 72,540 members) and Mark Zook, president/CEO of Maps, who is on CUCM’s board. Maps was the first credit union to use a CUSO as a buyer in a credit union lease-back more than 10 years ago.
NACUSO said it formed NACUSO Business Services last fall “to serve as a catalyst to accelerate the formation and growth of collaborations that bring value to credit unions and provide additional revenue to NACUSO to better fulfill its mission.”