(#7218) California, $59m, equity/debt: Regional headquarters, 100% leased, office space looking for equity and debt capital

Investment Summary:

Purchase: $59M (6.2% Cap Rate)

Debt: $35.4M

Equity: $24.855M

Average Cash-on-Cash: 9.5% (Projected)

Project Pre-Tax IRR: 12.5% (Projected)

Project Summary:

Total Project: Over 150K GSF

Renovated: 2020

Use: Office

Lease Type: Absolute NNN

Lease Term: 10 years

Current Occupancy: 100%

About the Tenant: 

  • The tenant is a wholly owned subsidiary of one of the world’s largest manufacturers. 
  • The subsidiary is also the parent company’s regional headquarters
  • The parent company has an “A” credit rating (Moody’s A1)

About the Property:

  • Paid over $15M in recent renovations and TI improvements
  • Located in Southern California
  • Accessible via 3 large freeways

Downside Protection:

  • The probability of termination of lease is low due to and current rent is 10% below market and Significant Tenant Improvements have been invested to upgrade the property
  • If lease is terminated, the downside risk is well covered: Total rental due for the entire lease term is $38 Mn and the tenant’s net assets provide 12x coverage of this obligation. AND The vacant building value is over $40M. Combined with the Lease payment, total secured cash flow to the investor will be over $70M - providing a coverage above the proposed purchase price of $59M
  • Based on the above, at $59.0M, the property is reasonably priced and provides reasonable protection against downside risk.