Investor’s IRR: 23.12%
Initial Equity: $2.40M
Acquisition Price $2.35M (April 2011)
Disposition Price: $4.6M (March 2013)
Hold Time: 23 Months
CAP Rate at Purchase: 6.15% (43% occupied)
CAP Rate at Sale: 7.80% (88% occupied)
In April of 2011, the Range Vista Medical Building was purchased as a “value-add” investment opportunity with a group of local investors and was syndicated through a joint venture between Signature Partners and Centum Health Properties. 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. Signature Partners and Centum Health Properties successfully worked together on the Highlands Ranch Medical Building from 2002 until the disposition of the asset in early 2010.
The property was a 28,034 square foot, three story medical office building strategically located directly across the street from the original St. Anthony North Hospital (a full-service, acute-care community hospital) and adjacent to the Panorama Pointe Senior Housing Project (150 mixed-income senior rental units and an additional 74 assisted-care rental units). The building was comprised of ten to eleven suites that ranged in size from 780 to 7,502 square feet.
In 2005, the property was purchased by a California based investor for $5,100,000; however, they were not able to effectively manage the property from out of state and suffered a major loss of tenancies due to market conditions and a “hands off” approach. In late 2010, the property was taken into receivership by their lender and we were able to reach an agreement with the Seller, Receiver and Lender to acquire the property in a “pre-foreclosure” sale for $2,350,000 ($85 per square foot, which is roughly 50% of replacement cost for comparable medical properties). At the time of closing, the property was 43% occupied by four medical tenants and a few roof top cell phone users; however, we were able to secure our first new lease just 30 days after closing, which brought the occupancy up to 62%. With this new lease, the property was cash flow positive.
The investment thesis was to acquire the Property with 100% cash and the necessary initial reserves and then secure a working line of credit to be used for common area improvements and re-tenanting of the remaining vacancies, which was estimated at approximately $900,000. The projected hold time was between 2 and 5 years depending upon market conditions, which projected an IRR in the range of 15.99% to 20.55% over that hold period. During the stabilization process, a cell phone tower operator approached us and offered a very aggressive price to create and sell a roof top easement with the current cell phone carrier leases on the property. With the sale, the partnership was able to realize a significant and unexpected profit. The property was stabilized in 18 month as projected, at which time the investors contemplated a sale at a market cap rate or a long term hold to enjoy the stabilized cash flow. We had heard rumors that St. Anthony North was considering relocation to a new hospital along the I-25 corridor, so it seemed likely that the local market and specifically this building would suffer over the subsequent 5 to 10 years. With this information, we determined that it was in the best interest of the investors to avoid this potentially negative impact and it was time to sell the building. We contacted a few potential buyers that were known to acquire this type of stabilized asset, quickly went under contract and closed roughly thirty days later with a significant profit to the investors.