In August 2018, CIP Real Estate acquired from Sperry Equities, LLC the East Sahara Commerce Center (the “Project”), a 72,042 square foot, two-building, small bay, multi-tenant industrial park located in Las Vegas, Nevada, off the I-95/515 Freeway, in the eastern part of the valley, less than a quarter mile from CIP’s recently acquired Rincon Industrial Park. CIP purchased the Project for $6.8 million ($94 psf). The total cost basis is estimated to be $7.28 million ($101 psf), which includes closing costs, capital expenditures, and reserves for roof improvements along with vacant unit TI’s and LC’s.
CIP purchased the Project with its private client group, including many of the same investors as the nearby Rincon Industrial Park. Both the purchase price ($94 psf) and the projected sale price (about $138 psf) are below the current estimated replacement cost of $145 psf for this rare small bay industrial product in Las Vegas.
Built in 1991 by the Ribiero Company, the Project comprises 44 industrial/ flex units ranging in size from 800 sf to 4,750 sf, with the majority of suites between 1,000 sf and 3,000 sf. The average office improvement is less than 15% per unit, with no ‘overbuilt’ units which typically are more difficult to lease and cost more to re-tenant. The Project was approximately 97% occupied at acquisition, and included multiple leases that had rental rates averaging 15%-20% below market. Over 50% of the leases expired in the first year of the Business Plan, providing an excellent opportunity to roll rental rates to higher market levels and create staggered future lease expirations through an aggressive marketing program. The resulting “value-add” plan rests in the restructuring of lease terms and an increasing occupancy level.
As noted above, the Project is located in the same block as one of CIP’s other Las Vegas assets, Rincon Industrial Park. Both properties are similar in size, product type, and tenant demographic, which will allow the Project to benefit from economies of scale in its reciprocal leasing, management, and operational strategies.
Included in the initial Business Plan’s capital expenditures budget was an expense of $18,600 for parking lot repair and slurry and stripe, $6,500 for signage improvements, and $25,500 for exterior painting, which improved the appearance and functionality of the Project and enhanced appeal to current and prospective tenants. There was also a roof repair and maintenance expense of $11,200 along with a $30,000 Vacant Unit Preparation and HVAC reserve for suites that required refurbished improvements and demolition exceeding the allowance underwritten in the ARGUS model. Additionally, the Seller provided a $100,000 credit through escrow, which would be held in reserve primarily for potential future roof replacement at the end of the five-year hold period.
This investment provides an excellent opportunity to acquire a rare multi-tenant industrial park that is synergistic to other multi-tenant industrial assets CIP manages and owns in Las Vegas while providing excellent annual cash flow and appreciation in value.
