"We are trying to fit in the niche between a troubled asset and a long-term holder," Greg Johnson, Archon's senior acquisitions manager, tells GlobeSt.com. He expects the acquisition team will spend between $40 million and $75 million this year for industrial properties in Las Vegas, Atlanta, Chicago, Los Angeles, Denver and Dallas. "But that is in no way an indication of what we could do," he explains. "If there are deals out there that aren't going to be profitable, we aren't going to chase them."
The play has been launched with the buy of Post Palms Business Center in Las Vegas. All that is being said about the seller is that it's a public REIT that has been unable to position the six-building, 139,906-sf office flex-warehouse property into a successful operation.The next buy will close in 30 days, Johnson confides, and is a 325,000-sf vacant facility south of Atlanta's airport. "We're pretty active because of the product type we're trying to choose," he says.
The acquisition partnership is eyeing industrial properties, primarily in the class B and C categories in the $5 million and over price range. Archon has been planning the industrial buying spree for about a year. The strategy calls for individual buys as well as entire portfolios--all with the end result of repositioning and selling. Archon is an old hand at such plays, but this is the first time it has applied the tactic to the industrial market although it has acquired a minimal number of such holdings in portfolio buys in prior years.
The selected properties are being driven by an internal rate of return rather than size or cost, says Johnson. "Ninety-five percent of what we're looking at doesn't come across our desks in shiny packets," he says. The idea is to stabilize, lease and sell to a long-term holder.
Archon will be investing up to $200,000 in finishing out 8,000 sf to 10,000 sf of shell condition space and another estimated $300,000 in exterior and mechanical upgrades at the 11-year-old Post Palms complex. Johnson says "the big challenge is primarily leasing this building." The industrial building, situated on 7.9 acres just one mile from the casino strip and close to McCarran International Airport, is 75% leased to 42 tenants, with 30% of the pacts ticketed to roll over in the next couple of years. Archon's plans for the low-end class-A building so impressed the lead tenant, Strategic Service Alliance Inc., that it signed a five-year lease for about 15,000 sf during the due diligence stage, says Johnson. He believes the structure will be 100% occupied in a year and ready to sell to an investor.
Archon will be outsourcing contracting work and leasing duties for each property. Pat Marsh of Colliers International's Las Vegas office holds the Post Palms leasing pact. "Industrial real estate especially is very local by design," Johnson says, "and we need to tap into the local expertise."
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