Initial Equity: $475k
Acquisition Price $1.283M (February 2007)
Disposition Price: $1.65M(January 2015)
Hold Time: 95 Months
In February of 2007, 1441 West 124th Street was purchased as a joint venture with Evergreen Specialties, Inc., a Denver based holiday decoration design and installation company that had been in business for over 80 years. At the time, the entrepreneur that owned Evergreen was also the owner of a company that had been a tenant in another property in the portfolio for the past decade. Since we had a long and successful working relationship with this individual in the past, we felt comfortable in proceeding with the project. The joint venture came with an initial lease term of 10 years on a building in which his company would occupy the entire facility. He looked to our expertise in the real estate arena to assist in space planning, city approvals, contractor selection, construction coordination, lending, etc. as he was not able to appropriately evaluate the opportunities and facilitate the purchase.?
The chosen asset was located in Westminster, Colorado near 124th and Huron. The 20,000 square foot facility was 100% vacant at the time of closing, which enabled Evergreen to occupy the entire facility and operate their business. After the acquisition, the partnership invested approximately $275,000 to make the building operational for the tenant. The modernization of the building included the addition of new restrooms, electrical and sprinkler upgrades, freshening of the office area and the purchase and installation of a paint booth and air make up system (which was specific to the tenant’s business). Evergreen moved into the building in April of 2007 and successfully tenanted the property until January of 2009, during which time the investors received a monthly 10% cash-on-cash return on their investment. Unfortunately the economic downturn, combined with the local day-to-day management of the business, contributed to the eventual shutdown and declaration of corporate bankruptcy by the Tenant. After working through the bankruptcy, the assets of the former company were purchased by several of the former employees of Evergreen and a new company, Alpine Artisan Studios, was created. The tenant negotiated a lease with the ownership and opened their doors for business in May of 2009. As a start-up company, combined with the downturn in market rents for these types of properties, the agreed upon lease rate was considerably less than Evergreen had been paying. Faced with a vacancy, the ownership determined that cash-flow during the economic downturn was better than a large vacancy.
Alpine ended up leasing the property through February of 2015 at an under market lease rate; however, a new lease extension with a landlord right to terminate was signed at market rates through February of 2020. With the new lease in hand, we approached the neighboring property owner that had previously expressed interest to determine if the timing was right to acquire the building. The opportunity fit perfectly for them as they were able to use the income in place and terminate the lease once they were ready for expansion. A purchase price of $1.65M was agreed upon between the parties and the property sold in January of 2015.
Even though we were faced with a nearly catastrophic recession and a tenant bankruptcy within two years of acquiring the property, we managed to work our way through the next six years and never miss a mortgage payment with our lender. Ultimately, all invested capital was returned to the investors with a nominal annualized return.