April of 2014, the CHP Two Ponds Medical Building was syndicated as our second joint venture between Signature Partners and Centum Health Properties and is a “value-add” investment opportunity acquired with a group of local investors. Signature Partners provided the strength in investor relationships, financing and asset management, while Centum Health Properties excelled in medical property management, medical tenant relationships, leasing and a high level of market knowledge of the Denver Metro medical community.
At the time of acquisition, the 31,307 square foot building was approximately 74% occupied, with several tenancies have under market lease rates. The property was bank owned, which had been returned to the lender by the out-of–state, previous owner. The initial strategy was to improve the interior and exterior common areas and attract new and existing tenants with significant tenant finish packages and increase the lease rates. The building consists of thirteen suites ranging in size from 995 to 6,355 square feet and was in desperate need of being updated. We raised a total of $2,500,000 from our investors, which was comprised of $1,800,000 in equity and $700,000 in an investor preferred loan. We closed on the property for $1,800,000, which was approximately $54 a square foot, and secured an additional line of credit with a local bank for $700,000. The proceeds from the preferred loan and line of credit were utilized to significantly upgrade the common areas, re-skin the building, improve the landscaping and pay for tenant finish and commission. The common area improvements enabled us to extend the leases of several tenants and sign new leases at rates that were 50% to 60% greater than the rates that were being achieved under the previous ownership. In 2015, we were able to place permanent financing on the property and use the funds to repay 100% of the preferred loan all but $400k of the investor’s equity.
The average annual cash-on-cash return to the Equity Investors over the initial five years (based on the equity remaining in the project) was projected at 21.76% with an Investor IRR, using a 5-year scenario, of 19.94%.