In March 2015, Urban Green launched an offering for a four-story, creative office investment opportunity in downtown Oakland, CA.
The business plan called for acquiring the asset at a substantial discount to replacement cost and leveraging the submarket’s strong fundamentals, the asset’s proximity to Lake Merritt, a BART station, and numerous other nearby amenities in order to reposition it and lease the property to creative office users.
Over a three year period, Urban Green planned to increase occupancy and aggressively improve the property by (1) redesigning common areas and exterior facade to modernize the look of the property, thus creating an atmosphere that is conducive to creative tenants, (2) combining the second floor with the mezzanine into a single 9,500 square foot space allowing targeting of a single user but maintaining adaptability to multi-tenant use if warranted, (3) installing valuable amenities for attracting local talent, such as showers and bicycle storage in the basement, and (4) renovating and leasing the third floor once the existing tenant vacated in February 2016.
Renovations remained in full swing in the first quarter of 2016, highlighted by successful vacating of the fourth floor and the demolishing of the existing partitions, creating an open concept similar to the two floors below. Urban Green reported a strong leasing market with multiple letters of interest for the space at rents in excess of pro forma. Despite this interest, Urban Green decided it would continue to pursue potential tenants whose time frames and space needs more closely matched the phasing of delivery of the fourth floor with that of the second and third. Further advancement of the renovation was expected to increase the strength of the offers even more.
Favorable Pricing Indications
In Q1 2017, Urban Green informed investors that it had received two Broker Opinion of Values (BOVs) assuming the current work was completed, but no tenant improvements were implemented and the building was sold with the office space vacant. Both BOVs indicated values well in excess of the exit pricing in the original pro forma. Urban Green planned to work on closing out the open permits and listing the property for sale shortly thereafter, with the goal of transacting in 2017, which would be ahead of original projections.
In Q2 2017, Urban Green entered into a contract to sell the asset at a price that compared favorably to the two previously received BOVs, with the buyer going non-refundable on its earnest money in Q3. As a part of the sale agreement, Urban Green would still have to close out all open permits, including those related to the new fire sprinkler system.
The sale transaction officially closed in December 2017. Favorable submarket conditions, including strong demand and price appreciation in the area, as well as the successful renovation plan execution, created the opportunity for Urban Green to exit the investment and achieve strong returns for investors approximately in-line with the original offering.
*Net of the most onerous fees charged to clients of CrowdStreet Advisors, LLC, our registered investment advisor subsidiary; an investor’s actual returns on a realized investment may differ.
This report contains explanations of a series of events associated with the 1924 Franklin offering that resulted in an approximate 18.9% (net of most onerous fees) IRR to investors (including those from the CrowdStreet Marketplace). Certain aspects of the report such as dates of major events and the final outcome are easily verifiable while others, particularly underlying reasons behind the sponsor’s business plan execution, are not.
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