Case Study
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Value of Long-Term Capital in Cyclical Industry
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200,000 SF Office Acquisition in Southeastern U.S.
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2007
Acquired 50% occupied office tower with a 2-acre surface parking lot for $19.2 million in Durham, NC
- Total capitalization of $24.6 million at closing
- Borrowed $20.9 million short-term floating rate loan
- $3.7 million equity investment; negative in-place NOI
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2008
Signed a 10-year lease with “AA” credit tenant for 35% of property
- occupancy still at 50% with initial tenants vacating
- NOI of $1.0mm
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2009
Great Recession: property worth less than $20.9 million (i.e. underwater)
- but able to cover debt service via interest only L+275bps loan w/o LIBOR floor
- NOI of $1.4mm
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2011
Invested additional equity of $3.7 million to expand “AA” tenant to 58% of property
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2013
Received first cash distribution since acquisition of property in 2007
- offered $29.8 million by institutional investment manager, but didn’t sell
- NOI of $2.0mm
-
2015
Bought out joint venture partner based on $33.5 million valuation
- improved operations and extended “AA” tenant’s leases
- $9.9 million of total equity invested to date
-
2016
Appraised by third-party at $41.9 million
- new 10-year financing generating ~15% COC returns; 17.7% Levered IRR and 2.4x MOIC ($14.1mm profit on $9.9mm invested)
