LA HABRA, CA-Organizing a Union Bank-occupied property sale as a single-tenant transaction and arranging carry-back financing for the shops property sale within La Habra Town Center helped maximize profitability for the seller, Dennis Vaccaro, senior managing director with Faris Lee Investments, tells GlobeSt.com. As GlobeSt.com reported exclusively earlier today, the two properties within La Habra Town Center here have been sold to two different buyers as part of a break-up strategy by owner/developer La Habra Town Center LLC of Newport Beach, CA; Vaccaro and senior managing director Nicholas Coo represented the seller.
The properties, located at 1820, 1950 and 1970 W. Whittier Blvd., include a 5,650-square-foot Union Bank and a 15,179-square-foot shops property containing tenants Starbucks, Quiznos and Cold Stone Creamery.
“The seller had three requirements for the deal: 1. to close by year-end, due to uncertainty relative to the increase in taxes; 2. to capture $8.8 million; and 3. to carry debt back against the property at the close of escrow,” Vaccaro says. “The only way to capture $8.8 million was to do a break-up. We drove down the cap rate by selling the bank asset on its own—this lowered the cap rate because it became a single-tenant property. The balance of the property—the shops—the owner decided to have carry-back financing against just the shops.”
Vaccaro tells GlobeSt.com that the break-up strategy is not common, but “Faris Lee has the most experience in break-up of retail assets over the years. We have done this so many times in the past. Sometimes it becomes necessary if there's a bottom-line purchase price by the seller that can only be achieved by breaking up the product into multiple sales.”
Vaccaro says that Faris Lee had an impressive fourth-quarter 2012 due to so many retail sellers wanting to complete transactions before year-end due to potential tax implications on both the state and federal levels. “Multitenant has opened up where activity has increased five-fold over the last two to three months.”
La Habra Town Center, built in 2000, is anchored by Albertson's and Rite-Aid, which were not a part of the sales. The Union Bank-occupied property sold for $3,621,000 at a 5.4% cap rate. The shops property sold for $5.2 million for a 6.8% cap rate and was 90% occupied at the time of sale.
Nicholas Coo and Dennis Vaccaro, senior managing directors with Faris Lee Investments, represented the seller. LH Property LLC, the buyer for Union Bank, was represented by David Sternberg of Roessler Investment Group, while the shops buyer, Elicelrena Group LLC, was represented by Jason and Katie Min of JK Group.
“Faris Lee Investments proposed a break-up sales strategy to the seller in order to maximize the cumulative sales price of the assets,” said Vaccaro in a prepared statement. “Despite the additional work of two individual deals as opposed to just one, our experience with these complex transactions enabled us to meet the challenging year-end closing requirement of the seller as well.”
As GlobeSt.com previously reported, in November 2012 Rick Chichester, president and COO, and Matt Mousavi, managing director, with Faris Lee Investments represented buyer Thompson National Properties in the off-market purchase of Lahaina Gateway, an upscale, 137,000-square-foot, grocery-anchored shopping center in Maui, HI, to Central Pacific Bank for $32 million.
Have you used a break-up strategy or other method to help maximize profitability for a client? Share your strategies in the comment box below.
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Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
