"We multi-tenanted [the center] so we could accommodate different configurations," David Bourne, Equastone's chairman, tells GlobeSt.com. "By putting in a common-area lobby and common-area corridors we were able to have lots more flexibility when leasing the space. We had it on the market and we were trying to find a super large tenant…we weren't successful. Once we split it we had lots of activity."
The center, which was sold to DRA Fund V LLC, an investment fund run by New York-based DRA Advisors, can now accommodate tenants from 57,000 sf to 128,000 sf.
"The sweet spot in Carlsbad is under 20,000 sf, but clearly our building was too large and [our] floor plates too large to have lots of 20,000-sf tenants," Bourne says. "So the best way was for us to break it down for 50,000-sf tenants and 100,000-sf tenants. Carlsbad tends to be a smaller tenant market, so that was a key part of the success of our repositioning."
Equastone, after acquiring the property in June 2005 on behalf of Equastone Value Fund I for $30 million, decided to make the move from R&D to office to fall in line with much of San Diego County, which has also seen an exodus of R&D and an influx of office.
"There's a greater demand and willingness to pay higher rents for office space than R&D," adds Ron Lack, Equastone's executive vice president. "Generally, in San Diego there's a trend toward office because San Diego is very much a high value-added, white collar workforce. Over time it's moved away from industrial and R&D and more toward office-type uses because manufacturing has gone to lower cost regions and overseas."
When Equastone Value Fund I initially purchased the Faraday Corporate Center, it was only 19% leased. Once Equastone acquired it and made improvements to the center's exterior and common areas, its occupancy increased to the current 49%. Despite the low, but improved, occupancy rate, Equastone was able to sell the property at a net gain.
"We still basically made our investment goal, in excess of 20% per year returns to investors," Bourne notes. "It's really about achieving 20% or north of that for investors and we were able to do that even though, at the end of the day, the property was only 49% occupied."
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