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Deal Case Studies

  • Property Type:

    Office/Warehouse/Quasi-Retail
  • Size:

    467,002 square feet
  • Occupancy at Purchase:

    96.5%
  • Purchase Price:

    $27,300,00 ($58.50/sf)
  • Acquisition Date:

    May 2012
  • Acquisition Cap Rate:

    10.9%
  • Projected IRR/Multiple:

    18.67%2.1
  • Projected Cash-on-Cash:

    8.0%
  • Total Investment:

    $11.5 million
  • Fund Investment:

    $2.3 million
  • Stabilized Occupancy:

    92%
 

Investment Highlights & Business Plan:

  • Five parks in 4 submarkets across western Houston, each asset benefiting from convenient access to Houston's primary roadways.
  • Houston has led the nation in job growth over the last year and is one of the top performing economies in the nation, driving the expectation that the market will see strong rental rate growth in the future.  
  • Property was purchased 45% below replacement cost at a high cap rate with immediate and strong cash yield created by above market in-place rental rates, high occupancy and a low interest rate on debt of 4.75%.
  • Underwritten market rental rates  are below in-place rates in the first two years increasing likelihood of tenant retention and attraction of new tenants to the properties.  
  • Sell the investment in five years either as a portfolio or as individual properties.
  • High occupancy at acquisition, strong in-place cash yield, expected rental rates, and an estimated exit cap of 8.6% suggest a strong risk-adjusted return.
  Year 1 Year 2 Year 3 Year 4 Year 5
Expiring Tenants Actual Rent at Term (NNN) $7.77 $6.96 $7.57 $7.90 $5.50
Projected Market Rents (NNN) $6.56 $6.35 $7.09 $7.83 $6.20
% Difference Actual to Market * (16%) (9%) (6%) (1%) 13%
Vacant Space Lease Up (sf) 6,848 9,686 - - -
% of Total Portfolio ** 1.47% 2.07% 0.0% 0.0% 0.0%
Cash on Cash *** 7.8% 7.5% 4.0% 11.0% 9.9%
  • * 4% average reduction in expiring lease rates over the 5 year hold period.
  • ** We believe we used conservative assumptions on lease up of vacant space.
  • *** Year 3 Cash on Cash is below average due to lease expiration of one of the largest tenants in the portfolio. We believe we used conservative assumptions for renewal probability and leasing costs and an 8% reduction in rental rate was assumed for this tenant upon renewal. Cash on Cash averages 8.0% over the 5 year hold period.
  • Property:

    Tri-County Business
  • Location:

    Tampa, FL
  • Property Type:

    Office/Flex
  • Purchase Price:

    $25,458,000($37.76/sf)
  • Acquisition Date:

    March 1999
  • Date Sold:

    September 2005
  • IRR/Equity Multiple:

    32% / 3.8x
  • TTM NOI at Purchase:

    $2,648,617
  • TTM NOI at Sale:

    $2,918,173
  • Occupancy at Purchase:

    84.0%
  • Occupancy at Sale:

    92.0%
 

Description

  • 20-building office/industrial business park in the heart of North Tampa purchased from lender John Hancock
  • Growth in the nearby high-income residential sector presented opportunity to convert existing industrial space to flex and office
  • Purchased REO from the lender, which had been working with local third-party leasing and management providers

Execution

  • Provided onsite management and in-house leasing required to provide service level demanded by target market
  • Aggressive capital program to lift the park's profile, including revitalization of building facade, painting and parking lot repaving
  • Effected significant capital savings through utilizing roof life extension programs and products
  • Repositioned asset as a business park rather than an industrial park, thus capitalizing on the location's demand from business owners and executives

Results

  • Stabilized occupancy at 92% while consistently achieving substantial  rent increases throughout product conversion