1683 Sunflower is a 343,683 – square foot industrial building located in Costa Mesa, California, highly visible along the I-405 Freeway. Utilizing its strong broker network, the asset was acquired off-market in September 2012. At purchase, the property was encumbered by a pharmaceutical tenant occupying 67 percent of the space through October 2015 and an assumed low-leverage loan expiring in September 2015. The vacant space, which contained no office and poor access, was leased month-to-month to a third-party logistics firm.
The original strategy was to spend $500,000 to construct a new building entry, office space, signage and access point for the vacant suite in order to lease it at a market rate after 12 months. Starting the marketing process even before the property was acquired, we negotiated an LOI with a furniture tenant prior to close at a lease rate above the projected rent. However, the neighboring landlord felt the potential tenant would put his tenants out of business. Through his strong political connections, he influenced the City to require a Conditional Use Permit (which they suggested they would not give), effectively ending the negotiation.
Although the original investment strategy is still in play, alternatives were needed. Noting the renewed appetite for apartment development, we reached out to a small group of reputable multifamily developers. Within months of acquiring the property for $27.25 million multiple offers were procured to sell the property for significantly more than the purchase price. Currently, we are pursuing this alternative exit strategy, and the auction process to achieve the highest price for the asset is in full swing, as well as executing on the original strategy.
- Infill location in primary Southern California location with just 3.6 percent vacancy
- Off-Market transaction with private seller through an existing relationship
- Reposition project by building a new entry, office space, signage, and access point
- Execute a LOI to lease the remaining vacancy before closing
- Efficiently acquired the property, assuming a loan that was problematic for other buyers
- After being the target of political back dealings, an alternative investment strategy was pursued
- Within months of acquisition, multiple offers were brought in from strong buyers at significantly higher than the purchase price within months of acquisition
- 16.0 percent Projected leveraged IRR
- 1.8X Projected multiple