In partnership with its private client investors, CIP Real Estate purchased in February 2018 Rincon Industrial Park (the “Project”), a 66,371 square foot, two single-story multi-tenant industrial park located in Las Vegas, Nevada, just off the 95 Freeway east of the “strip”. CIP acquired the Project for $5.1 million ($76.8/ s.f.) The cost basis will be $5.4 million ($82.8/ s.f.) including closing costs, Cap Ex, and reserves for vacant unit TI’s and LC’s. The Project’s layout is 90% industrial/flex units and 10% office units with tenants ranging in size from 600 sf to 3,840 s.f. The majority of industrial/flex units are 900-1,000 sf and the office units are 600-800 s.f. (note, several tenants have expanded into multiple units).
The purchase price and projected sale price are below an estimated replacement cost of $145/ s.f.
The Project was about 90% occupied at acquisition and included a number of leases with rental rates well-below market. The Project had over 45% of lease area expiring in the first year of the business plan presenting an opportunity to improve lease terms and rental rate structures. The seller had invested $700,000 of Cap Ex work into the Project prior to the sale, including new roofs, painting, parking lot repair, HVAC replacement and repair, and landscaping. While the seller had improved occupancy and completed major exterior cosmetics, and structural improvements, there was still a strong opportunity to bring the Project to its full operational potential during the first two years of the ownership period.
Though the Seller completed this significant Cap Ex program, the Project required additional refurbishment and repair/replacement, which helped improve the project’s future value and tenancy. Included in the business plan budget is a reserve of $170,000 for Cap Ex work that will improve the look and functionality of the Project. Subsequently, a reserve of $30,000 was established for Vacant Unit Preparation, for units that require higher improvements, demolition, etc. than what is standard in the ARGUS model. In the first year of the business plan, approximately 47% of the rent roll square footage expired (including a number of month-to-month tenants) which provided an opportunity to roll rental rates to higher market rates and create staggered future expirations through an aggressive marketing program. As mentioned above, the Project was 90% leased at acquisition, and now has an occupancy in the 95%+ range. Correspondingly, rents have been increased to current market levels, significantly improving the Project’s valuation just two years into the Business Plan.
