In November 2016, Vertical Ventures launched an offering for a 346,065 square foot office/R&D campus in San Jose, California. The business plan called for making property improvements, leveraging the property’s leasing momentum to finish leasing up the asset, increasing contractual rents on existing leases, and immediately liquidating upon stabilization.
Strong Momentum Early On
During the due diligence period, Vertical Ventures began discussions with an existing tenant to expand their operations and footprint within the campus. Within six weeks after closing, not only was this new lease expansion finalized and signed, but the sponsor was also able to quickly find a new tenant to backfill the smaller vacated space. The aforementioned two leases increased the property’s occupancy to 72%. The velocity of the transactions and leasing were unusually positive, surpassing original expectations.
By late 2018, all the heavy lifting was done and property improvement work was mostly complete (common areas improved, lobbies upgraded, vibrancy added to the outdoor space, etc.). Vertical Ventures tested the market in late 2018, but the building – only about 80% occupied at the time – didn’t get a lot of attention due unfavorable timing and market volatility. As a result, the loan was refinanced in Q1 2019. This not only produced a sizable distribution to investors – returning approximately 88% of investors’ original capital – but also significantly reduced the interest rate and provided the project access to future capital that could be utilized on the continued leasing efforts.
Vertical Ventures brought the property to market again in Q3 2019 and in March 2020 Hellyer Oaks Technology Park was officially sold. At the time of sale, the property was 85% leased, a significant uptick in comparison to 58% at the time of acquisition.
Strong leasing momentum, favorable submarket conditions, and a successful refinancing created the opportunity for Vertical Ventures to exit the investment and achieve 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 Hellyer Oaks Technology Park offering that resulted in an approximate 29.3% (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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