Challenge

The owners of 8801 Horizon Boulevard had holdings in first tier markets on the west and east coast and desired to sell the property at a capitalization rate they were achieving in other markets. The capitalization rates they were accustomed were a full point and one-half more than any similar type of property had ever sold in the Albuquerque market. In reviewing the property and comparable sales in the region, we proposed a marketing plan to the ownership where the market could set the price.

An additional factor that could potentially further impact the sales price was the building was master leased to a single user which had vacated the building, subleased the entire building to multiple tenants and the master lease was scheduled to expire within five years. To overcome this potential objection the marketing material supported that the property could provide significant upside in the future due to the current rental rate being substantially below market and that the anticipated sales price would be considerably below replacement cost.

The seller’s primary motivation for the sale of the property was to provide capital needed for a new development where they could effectuate a reverse 1031 exchange if they sold the property prior to June 15th of that year. The listing agreement was entered into January and expired June 14th, so there was a very narrow window in which to sell the property.

Solutions

Prior to marketing the property, a myriad of financial analyses were completed to show how best to convert existing Tenants to direct leases while staggering expiration dates to avoid a potential mass exodus with one expiration date. The property was modeled and compared to the market which proved that the current market rents actually exceeded rates from the master lease that was in place. With the modeling complete, the initial four years was not only very safe but the roll-over strategy could define a large upside potential by elevating the new leases to higher rates at the increasing market rents.

The property was then taken to market and exposed to approximately 900 potential buyers who had expressed an interest in this type of property in the Southwest US.

Results

After gathering and analyzing initial offers, the eventual Buyer was identified and negotiations began. Due to the projected upside of this asset, the property was actually sold at a price that exceeded the owners initial expectations by over 5%.