Very little had been done to improve or upgrade the property since it was built in the late 1980s. With a number of leases about to expire, including those held by some large tenants, occupancy was going to drop by 60 percent. The owners were having difficulty finding new tenants and the building’s valuation had dropped below the value of the mortgage principal.
We identified three options for investors: with a non-recourse loan, they walk away and lose all their equity; stabilize the leasing situation by discounting the rental rates to create liquidity and sell the property to recover some of their equity; or reinvest capital to reposition the asset, lease up and salvage their existing equity plus the new infusion for some liquidity and a return. The investors chose the third option, realizing that despite its risks, it held the best potential to preserve their capital. They put in $1.5 million on top of their original investment to retrofit the property mechanically and aesthetically.
Leveraging our team’s on-the-ground knowledge of the market and combining that with our passion for execution, we completely renovated the property, leased it up and sold it for a significant profit. The 24-month turnaround yielded strong returns for investors who had previously been facing a capital loss.