Updated: May 4
We would like to highlight one of our previous deals that drew upon the various strengths and skills of GAIN’s principals and capabilities. This can be considered a development play but taps on several different real estate skills; valuation, market knowledge, capital markets and leasing.
A few years ago, the firm was approached by a broker to look at an on-market office deal in the West Suburbs of Chicago owned by a national bank. It included two properties on one parcel, conjoined by a skybridge containing a retail bank branch and a four-story, 40,000 square foot office building. The project was acquired for $5,205,000 using bank debt and equity.
The business plan included:
a.) Splitting the parcel into two separate, conforming plots
b.) Executing a new lease with the bank tenant
c.) Removal of a skybridge
d.) Some tenant and common area buildouts.
Splitting the parcel required a plat of subdivision to be filed with the village which required extensive architectural and engineering drawings in order to successfully present the subdivision case to the city. Removal of the skybridge entailed demolition and construction that cost about $200K. The end result was two new parcels and two completely separate buildings.
In conjunction with signing the Purchase and Sale Agreement, a Triple Net (NNN) lease was signed with the bank for ten years and six months. This immediately changes the valuation methodology as NNN investors consider the risk profile to be similar to a corporate bank bond. The group was able to secure an investor willing to purchase at a 6.978% cap rate. The initial base rent amount was $470,000 resulting in a subsequent sale of $6,735,000. The sale of the now separated bank branch was able to repay investors 100% of their equity investment, pay off the full debt balance and provide a mid-six figure return. The cost basis for the remaining office building is now zero.
Some new leases were signed on the four-story building and it was ready to be marketed. It fetched a $2,325,000 price tag. All upside. Total hold period = Four months. Beautiful.
This deal was available to anyone in the marketplace but took a specific lens to be able to have the creativity and know how to be able to execute it. These skills have only been sharpened by the GAIN team as we have continued to hone and perfect our skills.