Value-Add Case Study: PDX Activity Center
Get an exclusive look into BKM's impressive property transformation at this 228,000 SF asset in Portland, OR.
INTRODUCTION
PDX Activity Center (formerly known as Airport Business Center) boasts an impressive vision of BKM’s signature value-add strategy, turning a previously mundane business park into a vibrant and thriving center of commerce at the heart of the state’s most densely populated city.
BKM has a long-standing history of investing in multi-tenant light industrial properties in the Portland market, having transacted on over $170M and 1.4 MSF of industrial space in the region since the company’s inception in 2013. Having a deep understanding of the market, the firm was well positioned with the expertise and tenure to take on yet another investment opportunity in the area, bringing its current holdings in the region to $147M and 1.2 MSF across six properties.
MARKET OVERVIEW
Key logistics hub for the West Coast and shares close proximity to major employment hubs in the Pacific Northwest.
Major exposure to sectors such as distribution, light manufacturing, and tech and green industries.
Overall lack of tenant options for high-quality, functional industrial space.
PROPERTY OVERVIEW
At time of purchase, the asset was 92% leased to 34 tenants in a 76% warehouse / 24% office build-out configuration.
OPPORTUNITY
Aesthetic Vision:
Despite lack of initial curb appeal, the BKM team visualized the property with significant aesthetic potential.
The team created a comprehensive capital improvement plan to include new landscape design, a modernized paint scheme, bold signage, roof and HVAC repairs, and speculative tenant improvements on vacant units.
Financial Vision:
The property presented a prime opportunity to capture significant financial value and outperform its competitors in the market.
Rental rate corrections would remedy the 24% below-market rates, capitalizing on the market’s strong economic growth potential.
The repositioning of the property’s interior and exterior will create sustained value for both tenants and investors.
Upon acquisition, the asset presented a prime opportunity for revitalization due to the property changing hands several times over a 20 year span. This fragmented ownership history allowed BKM the opportunity to develop a remarkable capital improvement plan, turning the asset into a premier multi-tenant light industrial park that stands out distinctly amongst competitors in the broader Portland industrial market.
WHY WE LOVED THIS DEAL
Numerous factors lead BKM to pursue the deal, including attractive repositioning opportunities and a strategic location.
Repositioning Potential:
Deferred maintenance at acquisition.
Fragmented ownership history resulting in a lack of attention to detail.
24% deficiency in rents delivering significant mark-to-market potential.
Ability to roll 40,000 SF of space during the first 12 months of the hold period.
74% of the NRA having access to dock high loading.
Unit sizes ranging from 1,125-40,000 SF.
WALT of only 1.9 years.
Initial cash flow stability delivering potential to fully realize rental upside during the hold period, marking all in-place rents to market well ahead of exit.
Opportunity to renovate between 30-35% of the suites prior to disposition (assuming 75% renewal rate).
Strategic Location:
Constrained supply dynamics as a result of high construction material costs and the state’s Urban Growth Boundary.
Convenient location only five minutes from Portland International Airport and the I-205 freeway.
20 minutes from the Port of Portland and BNSF rail yard.
Provides tenants with access to the entirety of the West Coast’s population hubs within a day’s shipping distance.
QUALITY TENANT BASE - GROWTH INDUSTRIES + DIVERSIFICATION
BKM’s value-add strategy seeks to retenant its business parks with growth industry tenants, achieving higher rents while maintaining an overall higher credit profile and minimizing risk.
While the property held a relatively diverse mix of tenants at acquisition, a large concentration of the tenancy already included high growth industries such as logistics/supply chain support and services and manufacturing.
Maintaining diversification in the tenant mix provides a hedge against the potential consequences of an economic downturn.
ACTION PLAN
Target budget of $5.4M, with $2.4M allocated for exterior improvements and $1.4M allocated for tenant improvements and spec work on vacant units.
Exterior Improvements
Interior Improvements
PROPERTY TRANSFORMATION
RESULTS
BKM’s comprehensive value-add strategy has quickly led to leasing and operational success at PDX Activity Center, positioning the asset for future growth and maintaining its competitiveness in the market.
40,000 SF of space was repositioned within the first year of ownership, including 10 interior projects that include speculative improvements, full unit rollovers, and tenant improvements.
96,000 SF of leases, or 42% of NRA were signed at or above market rates in the last year.
46.8% leasing spreads achieved on average for the spec suites, highlighting BKM’s superior ability to offer high-quality spaces and a white-glove approach to management.
88% of the 9 leasable units that underwent renovation at the property have been occupied, with the remaining unit expected to lease within 60-90 days of entering the market.
57% of new suites had a contract signed before construction was completed, serving as a testament to the desire for move-in-ready spaces that provide modern amenities.
BKM’s spec suites spend 28% less time on the market than other similar spaces for lease in the area.
23% increase in NOI since acquisition.
28% Increase in gross revenue since acquisition.
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