Case Study 90,000 Sq. Ft. Industrial – Office in Atlanta, GA MSA
All week long we’ve been dealing with Operating Agreement Details, waterfall profit distribution discussions, and sending financial docs over to the Life Insurance Company doing our loan. This will slow down once we close DD and simply await the closing. Here are the Details:
- 90,000 sq. ft. (actually a bit larger)
- 8.7% cap rate on current income
- National & Regional Tenants with 3+ yrs on Lease
- 10% Vacancy – to add to marginal value
- $17,000,000 purchase price
- $8,100,000 Capital Raise projecting 8% distributions beginning Day 31 (fully subscribed)
Why are We Buying this Deal?
This deal is projecting an 8-9% yield to Limited Partners paid monthly, beginning on day 31. If you’ve ever invested in syndications, you know this is special. It is very rare that distributions begin immediately. Normally they begin in the 1-3 year range-after a value add plan has been executed. This deal is special.
This deal is located in the Atlanta MSA, in one of the Northern suburbs. An 8.7% cap rate is a solid deal in a market like this. But, if this deal is so good:
Why the Seller is Selling?
This deal is 3 buildings, each about 30,000 sq. ft. One of these buildings is office space. The tenant was just acquired by a national company and resigned a 3 year lease. The risk is that the tenant leaves at the end of Year 3 when the National decides the location is redundant. 30,000 sq. ft. of Office Vacancy is the risk in this deal.
The Value Add – Redevelop the Office
If the office tenant leaves, we will redevelop the office building into 3 spaces of Industrial Small Bay-a red hot asset class right now. This deal only works because above the drop ceilings in the office building there is plenty of height to reconfigure the use. However, this is not cheap. A redevelopment of this size may run $500,000 or more. We’ve raised this capital up front-so Limited Partners will not receive a capital call in Year 3 if the tenant vacates.
Delusional Optimism – The Home Run Potential
If the office tenant leaves, the distributions will slow down as the space is vacant & during the time of the redevelopment project. It might be a tough year or so while that occurs.
However, if the office tenant stays, and we either give NO TI money, or even a few hundred thousand dollars, this deal becomes a home run. We have already budgeted for dealing with either of these scenarios going into the deal.
I wrote this article on how Delusional Optimism plays into my decision on whether or not to do a deal.
The Office Building
How to Invest Alongside Diamond Equity
Here at Diamond Equity, we have two main types of investments:
- Syndication Deals: 5-10 year hold periods. 18%-25% IRR
- Private Mortgage Deals: 3-12 Month hold. 2 Points & 10% Interest.
Most of these deals mentioned above are funded through a few phone calls & texts without ever being sent out to this email list (like today’s featured Atlanta Industrial – Office deal – $8.1M fully subscribed).
If you want to be added to my personal short list to place capital in our deals, reply to this email with the estimated amount to deploy, your cell number, & two times & dates that work this coming week for a quick phone call.
On the other hand, if you prefer to just see the investment opportunities which make it to the email list, you can sign up here.