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Former Borders Books Headquarters- Ann Arbor, MI
This +330,000 square foot office building was acquired in Jan 2013 through a joint venture with Ann Arbor based Wickfield Capital. The sale, a result of the Borders bankruptcy, provided a unique opportunity to enter this Class B+ building at a basis well below the rest of the market allowing us to offer rental rates up to 40% below the competitive set. Further, Wickfield was able to procure an executed lease for 20% of the building and LOIs for another 40% of the vacant space prior to closing, thus reducing the priced in risk for the formerly vacant building. The property, located in a desirable office corridor near the I-94 and the University of Michigan was impeccably maintained with no significant deferred maintenance. Among the highlights are +1,200 parking spaces, a rare commodity in Ann Arbor where parking can cost upwards of $200 per month per space, large open floor plates and a massive state of the art server room where more than 1,329 individual stores located across the country where hard wired to the fiber optic infrastructure running throughout the building. The property is one of the only full service office buildings in its class offering onsite catering, daycare, a full gym and dry cleaning.
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Hook Logic-10,000sf Office- Ann Arbor, MI
Formerly the Leopold Brothers Brewery on Main St. in downtown Ann Arbor this 10,000sf building enjoys a highly desirable location which sees very few properties offered for sale. The restaurant/brewery had ceased operations and vacated the premises at a time when the seller was facing a loan maturity on a building producing no income. In a partnership with Wickfield Capital, Schmelzle & Associates was able to procure a lease agreement with a highly successful digital marketing firm before approaching the note holder with a proposal to accept an all cash offer which included a reduced payoff of the unpaid balance for the vacant building. Immediately after closing on our acquisition we executed the long term, pre-negotiated lease with Hook Logic and commenced substantial renovation to reposition the building as Class A office space. The project represents our ability as operators to find value on a mid cap transaction with our hands on approach to risk reduction and value creation.
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Boozman Hof- 20,000sf Medical Office-Rogers, AR
The project represents a conservative core plus strategy and was acquired via a sale and leaseback in an off market transaction. The 20,000 square foot facility was purpose built by Marshall Erdman Co. the design and building company nationally known for its expertise of medical office. The property is situated on over four acres has a “forever” location on Walnut Road near major big box retail, I-540 and Mercy Medical Center and Walmart’s Home office. In addition to the Boozman Hof optical practice which has a long history and deep roots within the community, the building is co-leased by AmSurg, a publically traded operator of ambulatory surgical centers throughout the country. With a fifteen-year NNN lease agreement we elected to remove interest rate exposure on our low leveraged loan by purchasing an interest rate swap on the secondary market thereby locking in an extraordinarily low interest rate for the entire ten year loan term. The investment has been one of the best performers in our portfolio on a risk adjusted return basis.
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McNelly Mansion
Although Single Family Homes are not a current focus this project represents a unique investment where we were approached by a local bank in an off market transaction to purchase this partially complete 20,000sf property situated on 48 acres for a small fraction of replacement cost. The home had been under construction for years before the original owner and developer gave the property to the bank due to a debt obligation unrelated to the home. Located in Bentonville, AR within minutes of the Walmart Home Office and the world renown Crystal Bridges Museum of American Art, the property already had extensive custom millwork throughout the home using 23 exotic woods from around the world, an indoor shooting range, fully encased underground safe room with bank vault door, secret passages, horse stables, and a 6,000sf metal shop building. In what may be the property’s largest asset, the home sits upon a large natural spring, separate from the Ozark Aquifer, with the potential for commercialization. Because the original owner was a builder, the home had no building plans, blue prints or records of where to source the materials to finish the interior creating a major hurdle for the bank and prospective purchasers. Through our relationships we were able to locate the original builder and contract him to complete the construction. Our extraordinarily low basis in the project allows us to offer the home for sale at below market pricing while still achieving an above market return.
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Distressed Debt (Single Asset)
HUD Multi-Family Note Purchase
This Note was part of the HUD 2009-1 Loan Multi-Family and Loan Sale Auction. The loan had an Unpaid Balance of $2,585,947 and was purchased for $1,000,000. The property was originally developed as a second phase of a larger community totaling 172 units. The other 72 units were on a separate mortgage and purchased by a separate financial institution. The property was 72% physically occupied, was suffering from deferred maintenance with no rent ready units, lack of onsite management, a large balance of past due rents and was operating as two separate rental communities within one development. The issues with the property were primarily the result of being over leveraged from the beginning. A Deed in Lieu of Foreclosure was negotiated with the original borrower and a turn around plan was implemented. The adjacent 72 units was purchased at a deep discount from the note holder and the property now maintains +90% occupancy with positive cash flows. Schmelzle & Associates brought in a private Utah based apartment operator to implement the turn around and later sold its interest as the project became a long-term hold for the remaining partners.
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Distressed Debt (Single Asset)
HUD Multi-Family Note Purchase
The U.S. Dept. of Housing and Urban Development utilizes loan sales as one of its strategies to handle the mortgages insured by HUD that have become non-performing. The sales are held two to three times per year. After careful legal review of the loan documents, the remedies available to the note holder, and Title reports, we focused our attention on the physical property and financials. We identified three key areas to improve the financials of the property and after visiting the comparable rental communities determined River was suffering from a combination of overleveraging and mismanagement, not functional obsolescence. Immediately following the closing of the Note acquisition from HUD, we negotiated a Deed in Lieu of Foreclosure with the borrowers. After successfully implementing our turnaround plan and dealing with the complexities of the project based Section 8 contract we cash flowed the asset for several months. The property was listed for sale with a national apartment brokerage company and sold in December 2010, less than eight months after acquiring the loan, for a substantial return of greater than 2.5 times our original investment.
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