In 1998, Salus Properties Investments (Salus) chose to focus on the build-to-suit market for federal agencies, providing unique access to government-leased properties that offer investors a long-term stream of federal government-backed rental income, very low re-leasing risk and the potential for consistent asset appreciation.

Salus purchases its properties using a combination of debt and equity, generally with a loan-to-value ratio of 65% to 75%. For existing properties, Salus will consider assuming existing financing, but prefers properties that can be delivered free and clear.

No. The extent of investor exposure is limited to the amount of invested capital. Should recourse financing be used, the principal of Salus personally signs for it. Loan carve-outs for environmental and other lender requirements are signed personally by the principal of Salus.

The majority of the properties Salus manages are established as Limited Partnerships that own 100% of a Special Purpose Entity LLC with a bankruptcy remote manager. Salus serves as both General Partner of the LP and Manager of the LLC. For institutional partners, Salus can utilize other structures other than an LP.

Yes. In some instances, subject to certain minimum amounts, Salus allows a TIC partner. Salus is not a TIC sponsor, nor does Salus seek to market properties, programs, or securities targeted to investors in 1031 exchanges. However, if a family or institution is selling an important asset and would like to effect a like-kind exchange into a government-leased property, Salus will assist in accomplishing this by allowing the TIC partner to acquire an undivided interest in the property so long as Salus remains the managing co-owner. Salus approaches each situation on a case-by-case basis. Salus has also structured future TIC interest conversions into LP interests after the required holding period, providing options for families in their estate planning.

Yes, as long as Salus maintains a continuing involvement and interest in the property.

Salus’ tenured experience in owning and operating GSA properties has enabled us to develop a network of relationships among builders and brokerage firms that specialize in these properties. Further, we have worked extensively with developers who possess a proven track record of obtaining awards to build these facilities. Additionally, we possess a great deal of experience in working with the GSA and have developed a deep understanding of how the procurement process is conducted, how to track the progress of contracts, and to whom and when they are awarded. Salus has also developed computer models and databases that track each of the 8,000 GSA-leased properties in the continental U.S. Information such as ownership, lease terms, financials, and expiration dates are maintained and updated on a regular basis.

Salus targets properties priced between $10 million and $100 million. Properties within this range provide long-term value and appreciation opportunities and tend to fall below the radar of large REITs. The value derived from our experience and relationships is such that many of these properties are off-market transactions and the result of pre-existing relationships. We also look for mission-critical facilities where the cost to relocate would be prohibitive and there is an overriding reason for the agency to be in that location. Salus employs a long-term approach in evaluating a property before making an investment. Our goal is to keep a property in our investment portfolio for 10 or more years.

Our investments involve long-term leases, extending 10 or more years. Typically, Salus holds a property for a minimum of five years in order to take advantage of depreciation benefits. In the event an investor wished to exit the program, there is an option to sell your units to other participants in the program or an outside buyer of one’s own choosing.

Yes, almost every property Salus owns possesses either a LEED or Green designation. The company takes pride in socially and environmentally responsible investing. The LEED, or Leadership in Energy and Environmental Design Green Building Rating System, was developed by the U.S. Green Building Council. The system provides a set of standards for environmentally sustainable construction, including the use of key resources more efficiently when compared to conventional buildings that are simply built to code.

Historically, most of the types of real estate assets that are part of Salus’ program fell under the purview of Real Estate Investment Trusts (REIT). But the Federal Property Asset Management Reform Act of 2000, a bill designed to improve the management of the Federal Government's billions of dollars worth of real and personal property, helped to open this market. Typically, an individual investor does not have access to properties of this size and quality or is limited to smaller properties that present increased risks inherent in most commercial real estate ownership, such as releasing risk and capital investment for tenant improvements. As a result, the upside investment gains on such properties is limited and lack the benefits of GSA-leased properties, which provide for stable tenants carrying long-term leases that produce consistent income.

There are risks inherent in investment in any asset class. However, the risks associated with owning and operating a GSA-leased property tend to be low relative to real estate markets in general. GSA leases carry the same guarantee as a U.S. Treasury note. The primary risk of investing in any real estate property lies in the interest rate attached to the debt when it is refinanced at some point in the future, usually in 10 years to 15 years. In the case of Salus’ GSA properties, this risk is reduced by annual principal payments that reduce the amount of the debt. As a result, when it becomes necessary to refinance, the amount of the new loan is much lower and the annual debt service will be lower thereby increasing the annual income., There is also the normal operating risk inherent in owning and operating any piece of real estate.

The leases on GSA properties are gross operating leases. Here, the lessor pays all expenses except for any increase in property taxes, which are borne by the GSA. The main area of operational exposure is the same in any commercial real estate asset: namely the cost of electricity and HVAC maintenance, which can negatively impact operating income. To hedge rising energy costs, Salus acquires facilities built mostly in states with regulated utility pricing. In states that are deregulated, we purchase forward fixed-rate energy contracts that average five years in length. Risk is further mitigated through the use of new energy monitoring technology that provide for greater efficiencies.

Investors receive detailed quarterly and annual reports on their investments. Reports are prepared by the firm’s Certified Public Accountants and provided to all partners and lenders. In addition, annual K1 reports and, where applicable, TIC (tenant-in-common) schedules are issued. All partners have access to senior management at all times.

Investors and assets held in the program are protected in the event that Salus’ principals become incapacitated or are unable to actively manage the firm’s investment program. Salus possesses a $2 million key person insurance policy that ensures that Salus has the necessary resources with which to find a suitable asset manager for the program. In addition, all of Salus’ back office functions are performed by CBRE/Richmond Asset Management Services and in the event Salus’ principals were unable to fulfill their duties a plan is in place to allow for a seamless transition for CBRE/Richmond to immediately transition to become the primary asset manager. The file includes information pertaining to banking, partners, and payment schedules, as well as operational data, debt information, contacts, and correspondence.