In June 2019, Unison Realty Partners (“Unison”) launched an offering for a 95,933 square foot neighborhood shopping center located in the heart of Chapel Hill, North Carolina.
Having owned the property since 2016, the offering represented a recapitalization opportunity for investors with Unison having already invested over $660,000 in capital improvements and deferred maintenance. As such, the property was stabilized and without any identified capital needs.
Unison’s business plan included continuing to proactively monitor the needs at the property over the course of its hold period, with a $155,000 established in reserves for unanticipated needs. Unison had underwritten selling the property in Year 5, following the projected renewal of Lowes Foods and CVS for an additional lease term. Unison would seek to sell the CVS parcel separately from the main Lowes Foods parcel, a strategy that was anticipated to achieve a significant exit cap rate arbitrage.
With none of the leases at the property set to expire before 2022, the offering provided security to investors. Additionally, 95% of the small-shop tenants had no contractual renewal options remaining, thus creating rent growth potential that could be sold to a future buyer. Unison believed that this growth potential, combined with potential future lease renewals for Lowes Foods and CVS, positioned the property to achieve a value-add-like absolute return upon the completion of the business plan.
Despite the pandemic requiring all nonessential businesses within the state to cease activity in late March 2020, performance at the property did not deteriorate given the strong anchor tenant base. In January, Lowes Foods had signed a renewal and 10-year extension and Unison continued to work with tenants on a case-by-case basis to review any rent deferments necessary with the goal of helping tenants make it through the pandemic and be successful long term. In March nearly 93% of tenants paid rent, which was followed by a lower, but still strong 87% collection rate in April. Despite strong performance, Unison elected to preserve cash out of an abundance of caution and wait until later in the year to begin making distributions. Ultimately, the first distribution was sent out in August 2020.
Lowes Foods - Partial Sale
Unison believed that securing the renewal and 10-year extension with the grocery anchor, Lowes Foods, positioned the property for an optimal sale opportunity, taking into account a typical buyer’s desire to have anchor leases with as many years remaining as possible. In the first week of February, the Lowes Foods strip was sold, with both the senior loan and Lowes Foods earnout loan with the lender being fully paid off at the time of sale. Simultaneously, Unison informed investors that it had also accepted an LOI for the CVS parcel and that the Purchase and Sale contract was being negotiated.
In early April 2021, as planned, Unison completed the sale of the CVS parcel, denoting the full realization of this investment. In conjunction with the sale of the Lowes Foods strip in early February, the total actual gross sales price of the property exceeded the originally underwritten sale price targeted for end of Year 5.
The stabilized nature of the asset and Unison’s successful business plan execution of renewing leases with anchor tenants led to an early exit opportunity, achieving favorable returns for investors.
*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 Chatham Crossing offering that resulted in an approximate 13.8% (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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