Value-Add Case Study: Pacific Business Center

Get an exclusive look into BKM's impressive property transformation at this 898,000 SF asset in Las Vegas, NV.

PROPERTY OVERVIEW

• The 900,000 square foot asset is situated less than 9 miles from Harry Reid International Airport and 13 miles from the Las Vegas Strip.

• The property comprised 13 buildings across its two hemispheres, with six larger distribution buildings on the south side and seven small-to-mid-bay buildings in the northern half. 

OPPORTUNITY

Aesthetic Vision:

• The property was well-maintained but lacked a modern design concept, allowing BKM to enhance its visibility and appeal.

• Exterior upgrades included a new paint scheme, updated signage, and light landscaping.

• Larger interior suites were subdivided into smaller, white-boxed warehouses for greater functionality and tenant flexibility.

Financial Vision:

• Acquired at a 26% discount to replacement cost with stable in-place cash flow.

• Opportunity to lease 140,000 SF of vacancy in a submarket with 2.3% vacancy.

• In-place rents were 24% below market, offering strong rent growth potential.

• BKM targeted premiums by selling three single-tenant buildings to owner/users.

NEARBY BKM PROPERTIES

WHY WE LOVED THIS DEAL

Numerous factors lead BKM to pursue the deal, including attractive repositioning opportunities and a strategic location.

• Divisible space opportunity: Prime opportunity to divide large-bay buildouts into 15 mid-and small-bay units, both of which command rental premiums in the market.

• Structural improvements: The property had benefited from over $12.4 million in structural capital improvements in the hands of prior ownership, including upgraded roofs, HVAC systems, LED lighting, and modernized office finishes.

• Tenant Base: Pacific Business Center’s diverse tenant base, where no single occupant exceeded over 8% of the NRA at acquisition, offered stability, while nationally credited tenants accounted for 38% of the leased space. 

• Location: Positioned with immediate access to the I-215 and US-95 (I-515) freeways, the property is strategically located to serve the region’s booming tenant demand, driven by trends in e-commerce, manufacturing, and population growth.

MARKET DYNAMICS

• The Las Vegas market absorbed approximately 1.5M square feet of industrial space as of Q3 2024, despite the influx of recent industrial deliveries.

• Asking rates reached a weighted average of $1.19/SF on a NNN basis as of Q3 2024. This is 65% higher than the average asking rate of $0.72 in Q4 2019 when the asset was purchased.

• Rates hover near $1.21/SF - $1.25/SF for light industrial and incubator units in the Henderson submarket, representing the high demand for space in that particular submarket and the ability to command greater rental premiums for small-bay product. 

• The vacancy rate in the Henderson market sits just below 3%, despite the broader Las Vegas market experiencing rates upwards of 7%.

FOCUS ON GROWTH - SIC CODES

• The BKM team has successfully curated a diverse set of tenants at the property in alignment with its strategy involving SIC (Standard Industry Classification) code growth and diversification, mitigating risk in times of economic distress and acting as a hedge against potential industry downturns. 

EXECUTION PLAN

• BKM devised a $4.5M CapEx budget, allocating $421,000 for cosmetic improvements, $1.47M for structural improvements, and $2.67M for other expenses.

• The original business plan called for rolling 668,669 square feet, or 74% of NRA, to market rates during the hold period. 

• Plans also called for the sell-off of three select single-user buildings upon lease expiration, providing immediate outsized returns for key stakeholders as well as tactical liquidity within the longer term.

Exterior Improvements

Interior Improvements

PROPERTY TRANSFORMATION

RESULTS

BKM’s comprehensive value-add strategy has produced stellar operating and leasing results at Pacific Business Center, demonstrating proper execution of the business plan and BKM’s superior ability to produce outsized returns for its investors.

• 84.7% NOI growth between 3Q 2019 and 3Q 2024.

• 8% net increase in occupancy since acquisition. Maintained stable occupancy throughout the hold period as a result of a robust leasing strategy.

• Rolled 26 out of 44 spaces, or 60% of the property’s units as of Q3 2024.

  • Lease renewal rates averaged about 90% between 2020 and 2023, deferring the need to roll available units.

• 1.04 months average downtime for vacant units at the property between time of purchase and 2Q 2024.

• 31.6% average leasing spreads between Q1 2020 and Q3 2024.

• 84% increase in overall lease rates, with an average of $0.76/SF in 2020 to $1.40/SF today.

• 100% of NRA has been signed at or above market rents.

SINGLE ASSET SALES

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