Challenge

1985 Gillespie Way is a 28,564 square foot Class A flex industrial property that had a near-term lease rollover with an extremely high credit tenant with a substantial build-out. This was an off-market transaction that many groups stayed away from due to the complexity of the property’s ground lease structure and the perceived risk of a near-term rollover.

Strategy

The agents sold this asset off-market with a value-add through a leasing strategy. During escrow, they were able to extend the tenant, Cox Communications, to a new seven-year lease at a market-record rental rate. The agents’ in-depth knowledge of the operations of the municipal ground lease structure allowed them to be able to get both buyer and lender comfortable with the fact that this ground lease was extendable and had capped reassessments, providing for an opportunity for strong, uninterrupted cash flow.

Results

At the close of escrow, the agents achieved an in-place cap rate of 7.4%, leaving the investor with double-digit cash-on-cash returns through a 10-year fixed rate debt.