This deal is a value add retail deal in Long Beach, CA. It is a 13 unit retail center with two vacant units. This can be categorized as a value add deal since its current occupancy is around 85% and leases that are below market. The property is located on the north side of Long Beach, so it isn’t in the booming area of Long Beach close to the beach. PCH is a significant artery for the area, with over 46,500 VPD (vehicle per day) going by the property per the OM. Long Beach continues to experience a rapid boom that will help increase this property's value over time. Let’s take a look at the financial numbers.
After we load the property on Investart, we can see that in year one and year 4, the tenants that are rolling have leases that are under market. We can quickly visualize this with the dashboard's market rent vs. in-place rent feature (see below). Being able to retenant these units and fill the vacant units successfully, the investor can realize the maximum return for this property. After year 4, all the leases are now up to market, creating an excellent opportunity to exit from the property. Selling at year five would be a prudent strategy since you can see that 50% of the center will be rolling in year 6. The investor can sell the dream to the next owner.
Looking at the comps provided by the broker, we can see a very comparable property that recently traded at 2295 Long Beach Blvd. at a 6% cap. We are using a 6.5% exit cap for this investment. We can see from the Rolling IRR chart (see below) that selling year 5 captures the value from the under market leases and vacant units and minimizes the risk for the investor since 50% of the center is rolling on year 6. We can also see that it could be advantageous to sell year three after the first under market leases are signed along with the vacant units. It comes down to the pain tolerance of the individual investor.
If I have piqued your interest, take a look at the model for this property. The first link is the full report in PDF form. The second link is the live model already loaded into Investart. You’ll need to sign in to your account and then click the link, and a copy will appear on your account. It is completely free to sign up for an account at Investart. For any questions regarding the property, please contact the listing broker, which can be found in the last link.