In May 2019, CIP Real Estate acquired Interstate Commerce Park (“the Project”), a 218,537 square foot, five-building, multi-tenant industrial park in Greensboro, North Carolina, located immediately off the I-40 Freeway, on the south side of Downtown Greensboro.
CIP purchased the Project for $7.8 million ($35.70 psf). The seller provided a credit for parking lot repair and roof replacement totaling $450,000, for a net sales price of $7,350,000 ($33.63 psf). The total cost basis was estimated to be $8.7 million ($37.79 psf), which included closing costs and capital expenditures. Due to high construction costs in the Greater Greensboro Area, today’s replacement cost for the Project is conservatively estimated to be $96 per square foot. Accordingly, the Project’s “going in” cost basis was less than 40% of the conservative replacement cost.
Built in two phases, with the first two buildings constructed in 1973 and the remaining three from 2001-2002, the Project was designed to offer functionality and accessibility for industrial and distribution tenants. The Project’s location in Greensboro places it in a desirable industrial market in the Greater Piedmont Triad Area due to accessibility to Downtown Greensboro (just 2.5 miles north) and direct adjacency to Interstates 40 and 85 with close proximity to Highways 70 and 220 as well. The Project benefits from its diversity of tenants, wide range of suite sizes, and ease of access for small- to mid-size businesses. The Greensboro industrial market currently maintains a 5% vacancy overall and a 1% vacancy for large-bay industrial distribution facilities, such as the Project’s larger units.
The Project comprises eleven industrial suites ranging in size from 3,200 sf to 60,036 sf, with five units each comprising less than 10,000 sf. The Project is known in the area as a “low cost” distribution space provider and is currently 100% occupied. Multiple leases have rental rates averaging 27% below current market levels. All of the leases in the Project expire during the term of this five-year business plan, providing an excellent opportunity to roll rental rates to higher market levels and create staggered future lease expirations, benefiting future marketability. CIP’s current “value-add” business plan comprises restructuring and extending existing tenant leases to market rent levels while maintaining buildings in an “as is” configuration.
The Business Plan also includes a $50,000 capital expenditures budget for parking lot repairs, slurry, and stripe. Projected roof improvements totaling approximately $190,000 are planned in year two or three (for building 102) and $210,000 in year five (for the three buildings constructed in 2001). The remaining $50,000 of this credit will be kept for parking lot and other miscellaneous near-term improvements in the first year of operations. These improvements will enhance appearance and functionality of the Project and increase appeal to current and prospective tenants.
An alternative “opportunistic” business plan incorporates removing the two 1973-built buildings (#102 and #110) to construct two or three small-bay, multi-tenant buildings. This strategy would upgrade the overall quality of the Project, providing for higher rental rates across the Project, and convert it to more of a true mid-bay multi-tenant business park. These modifications to the Project could attract a wider array of buyers at lower cap rates at the end of the five-year hold-period. The feasibility of this strategy will be researched further during the first two years of the ownership period, as building 110 is currently leased until March 2022. CIP would proceed with this alternative redevelopment plan only if the economics are significantly accretive in total IRR compared to the currently underwritten “hold, raise rents and sale” scenario projected in the Business Plan.
The Project was acquired in a joint venture with its long time institutional financial partner, Alex. Brown Realty.
