Case Study - Buying an Asset for Half the Seller’s Basis

The group we showcased last week provided details on a recent acquisition that we’re sharing as an example of an opportunistic transaction.

The property is a 48,000 sqft suburban office building in the Playa Vista neighborhood of Los Angeles leased to a single investment grade publicly traded entertainment related tenant. This capital source funded the full $24M cash purchase price as a joint venture equity partner. The purchase price was half of the seller’s original basis.

Purchase Cap Rate = 11.2%

How were they able to acquire the property at such a discount to the seller’s basis?

Several reasons:

1. The seller was a large commercial real estate private equity fund that acquired this asset as part of a larger portfolio acquisition. Their expected hold period was coming to an end and they were less concerned about the performance of this individual property vs the portfolio and were disposing of assets as scheduled. In short, they were more motivated to get this property off the books than maximizing the sales price.

2. High quality suburban office is being punished by the market for being in the same “bucket” as CBD office towers, which have received a lot of negative press over the last several years. Office being a dirty word now means that values across all variations of office properties have come down substantially, creating the opportunity to buy high quality assets and income streams at great yields.

3. Cash is King. This group was able to close quickly all cash, providing the seller with confidence they can perform and wouldn’t be subject to the appetite (or lack) of the debt markets for loans secured by office properties.

This is a great example of a “story” deal that due to unique combination of factors created an excellent buying opportunity for the purchaser.

Recap of their investment criteria:

They’ll look at all property types (even office).

Property Types: Hotel, Residential, Office, Retail, Healthcare, Other Niche Property Types.

Markets: Primarily Western US & Texas but will look at Hotels Nationwide

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Nathan Whigham
President
CA DRE Broker License: 01793655

EN Capital Contact Info:
www.encapital.com
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Direct Line: 310-465-92