Case Study
Client: Individual Industrial Property Investors
Property: Rancho Gateway – 68,685 SF, Rancho Dominguez, California
Description: Two-tenant industrial building with unit sizes 31,818 SF & 36,867 SF
Transaction: Purchase – LAREM is the acquisition broker and investment syndicator
Summary: LAREM’s team of professionals uncovered an excellent, value-add industrial investment opportunity in the South Bay area of Los Angeles. The building was a five year old state-of-the-art warehouse distribution facility totaling 68,685 SF. Although designed as a two-tenant facility, the first-generation lease for the building was to a single tenant. As a result, building improvements necessary for accommodating two tenants, such as separate office areas, restrooms and power panels, as well as a demising wall to divide the space, were never undertaken. When the original single tenant vacated after five years, the owner was reluctant to make the improvements necessary to divide the building and it experienced a long vacancy before it was offered for sale. Further, purchase of the property was subject to either assuming an existing low loan-to-value first trust deed mortgage or paying this loan off at acquisition and incurring a steep pre-payment penalty.
Challenge: Assemble a group of investors to acquire at favorable economic terms this languishing industrial property. After acquisition, accomplish the timely lease-up of the building, making it a viable investment for the group.
Solution: LAREM assembled a group of investors that could fund the 50% equity necessary to acquire the property subject to the existing loan, thereby saving the substantial loan pre-payment penalty cost. Instead these funds were directed toward completing the improvements needed to divide the property, including the build-out of a new office component totaling 2,500 SF, installation of a separate power panel and construction of a demising wall to separate the two units. By proposing to divide the building into two smaller spaces, LAREM’s marketing professionals were able to project higher achievable lease rates and a shorter lead time to 100% lease-up of the property. LAREM’s asset management team oversaw the improvement phase of the project, including architectural design, permitting, construction competitive bid and general contractor build-out of the improvements. LAREM’s brokerage group launched a comprehensive marketing campaign offering the soon to be divided building for lease. To generate cash flow during the plan check/permitting/construction phases, LAREM leased the building warehouse month-to-month to a business in the area with a short-term overflow requirement.
Result: Construction to divide the building was completed and the two units were timely leased long-term to creditworthy tenants at higher lease rates than previously attainable for a single tenant property. As a result, increased cash flows commenced with minimal vacancy downtime and the investment has appreciated substantially in value.
