Investor’s IRR: 6.11%
Initial Equity: 250,000.00
Acquisition Price $ 5,350,000.00
Disposition Price: N/A ~ Deed In-Lieu
Hold Time: 9 Years and 6 Months (June 2000 to December 2009)
CAP Rate at Purchase: 8.83% (estimated)
CAP Rate at Sale: N/A ~ Deed In-Lieu
In mid-2000, we were invited to invest in another real estate promoter’s investment opportunity. Lynda Gibbons (of Gibbons-White, Inc.) had identified a two building fully leased portfolio consisting of approximately 50,474 rentable square feet in Boulder, Colorado. One of the buildings was leased to Ball Aerospace (national credit) and the other to Gold Systems (local credit). We felt the opportunity to place a small amount of equity in a passive position within this larger investment group as well as the general stability of the tenancies, presented a unique and viable opportunity. Furthermore, Lynda has a very solid track record and we worked closely with her on many other real estate transactions in the past. We syndicated a small group (which consisted of friends and family) to participate in this investment, which enjoyed an uninterrupted distribution for the first 7 years of the hold period (around 8% to 10% cash-on-cash based on the remaining equity). During that time period, Gold System’s lease naturally expired and Ball Aerospace took over the second building. Shortly after that expansion, the master partnership refinanced the project based on the new stabilized values and the investors were given a partial return of their investment capital (50% of the original equity). The project continued to cash flow until Ball’s lease naturally expired, at which time the building went dark for an extended period of time. The leasing team that was marketing the assignment was unable to attract a viable replacement tenant at the necessary terms to satisfy the lenders requirements, which unfortunately was a time when the economy went into a recession and the Boulder County real estate market softened. The Investors evaluated the restabilization costs that were necessary and the final determination was that a recapitalization wasn’t in the investor’s best interest. Therefore, we supported the general partner’s recommendation to take a deed in-lieu of foreclosure and release of the asset versus putting more equity at risk. In the end, due to the healthy cash distribution in the initial 7 years of the investment period, coupled with the financing out of equity, the investors still had a full return of their investment equity along with a moderate yield (6.61 % IRR) even though the asset was released to the lender.