Case Study

The Principals acquired a quality-built, freeway-fronting industrial showroom property in 2019 for $11.0 million, owned and operated by a local family for eight years.  At purchase, several tenants were on a month-to-month basis, several had missed rent payments, and 100% of the nine suites were leased at below-market rates.  The Management Company re-branded the Center with modest capital improvements and a theme of sports and outdoor-oriented after-market products, extended the month-to-month leases at market rates, and increased rents in new leases by as much as 40% over prior tenancies in some cases. Further, the Management Company commenced processing a condominium map so that the unique freeway-fronting units could be sold to companies valuing the exposure.  Prior to completion and recording the map, seven of the nine units were reserved in escrow, and upon sale of all the units the expected gross value is projected at $18.5 million. Total capital expenditure, including updates to the property, the freeway-visible, 60-foot high electronic pylon sign, and including the required mapping process, is anticipated to be $720,000, or 6.5% of the purchase price.   The Management Company projects an increased asset valuation of approximately 138%, a gross IRR of 35.8% and a multiple of 2.19 on invested equity, within a projected 31-month holding period.