On behalf of long term clients who own Southland property in an area filled with students, Our team
was engaged to sell their building and exchange them into a property offering more stability and cash
flow. We were asked to put them in a better position in a volatile selling and finance market during the
pandemic and the advent of many tenant protections. The exchange property was older and had been
in their portfolio for many years. It was in need of upgrades in building improvements to compete for
market rents in the area. Rather than spend many dollars upgrading the clients asked us to help them
sell the downleg property and then exchange into buildings giving them more stable cash flow with no
management responsibility and less risk.
The downleg property was valued at over 10 million dollars and about 10% of the value was owed in a
first TD mortgage with no prepayment penalty. After expenses the property was returning about 2%
annually on equity net of expenses. The property was marketed broadly and a buyer was identified
who closed as agreed in 2022. While in escrow, our TRG Team began our work looking for a suitable
upleg exchange.
The Clients were put on a nationwide alert for absolute Triple net properties which met their criteria. A
5.5% annual return on invested cash with annual rent increases and no Landlord responsibilities with a
large corporate guaranteed lease with at least 15 to 20 years of remaining term. It was decided early
on to mitigate the buy side risk by purchasing more than one property. We also found that a softening
of this absolute NNN market with an ongoing rise of interest rates made it possible to wield our cash
position for more favorable terms. The team reviewed over 275 properties and offers were made on
about 15 properties. The finance market was changing dramatically and rates were on the increase.
The client did not want to finance at a rate over 6% which would be less than the cash flow return he
was receiving. With time to spare we were able to close on 2 upleg exchanges at 6% annual caps with
2% annual increases and 20 year terms. One property was in a chain of schools guaranteed by a multi
billion dollar company and another property with 1500 stores and plans to add a 100 stores a year for
the next ten years. We had tripled the cash flow of our client while eliminating his management
responsibilities and not spending any additional cash but the exchange proceeds in the downleg NNN
accommodator account with corporate guaranteed leases.
If this sounds exiting and beneficial to you, please give us a call to schedule a meeting.
Stephen Watson (213) 446-3636 or Michael Fukushima (818) 321-6490