Value Creation Through Early Re-Tenanting

USAA and nThrive - PLANO, TX

USAA and nThrive

Background & Challenge:

  • Property occupied by nThrive (under a 15-year lease), which had recently completed a merger
  • Tenant was consolidating footprint away from the asset while seeking either a sublease of the property or a buyout of its lease with approximately 8.5 years remaining

Resolution:

  • Secured 11.6-year, full building lease with USAA
  • Rent was approximate 38% higher than what nThrive was paying
  • nThrive lease termination payment offset nearly half of TI allowance

Benefits:

  • Property re-leased to an investment grade tenant with no downtime and increased rent resulted in substantial value creation
  • Validated on subsequent sale – sold for $107 million (5.6% cap rate)

Blend & Extend Creates Long-Term Value

Rockwell Collins Divisional HQ for Simulation and Training Solutions - Sterling, VA

Rockwell Collins

Background & Challenge:

  • Acquired in 2014 with 7.8-year lease
  • 82,000 square foot office and 96,000 square foot high bay/lab/warehouse space
  • Despite being well-located, in 2017 the property was lightly occupied, underutilized and at risk of going vacant
  • Tenant sought early renewal: 19% rent reduction, $20 per square foot, TI allowance, 4% leasing commission and 5-year term

Resolution:

  • Negotiated and executed a blend and extend: 17% rent reduction, no TI allowance, 2.75% leasing commission for 7-year lease extension
  • Subsequently, the tenant exercised its option to expand the building by 29,000 square feet at a total construction cost of $6.2 million (tenant pays annual yield on the construction costs over the lease term)

Benefits:

  • Management estimates that two deals increased the value of the asset from $33.8 million to $45.7 million (an increase of approximately 35%)

Value Creation through Property Repositioning

Praxair - The Woodlands, TX

The Reserve at Sierra Pines

Background & Challenge:

  • Property was 100% leased to five tenants at time of acquisition in 2012, but occupancy dropped to 67% by May 2020
  • Praxair, whose lease was expiring in 2022, merged with Linde AG and was looking for a North American HQ in the Houston area.

Resolution:

  • Secured 11-year lease renewal for 120,000 square feet, in part due to plans to amenitize the property to compete with much of the newer available product in the market
  • The renewal will generate approximately $20 million in NOI, which net of approximately $7 million of leasing costs, yields a net effective rent of $10 per square foot.

Benefits:

  • Increased occupancy rate to 75% and preserved existing level of NOI
  • Generated liquidity and added a long-term, investment grade anchor tenant