In October 2017, Hempel Companies launched a recapitalization offering for a 103,387 square foot office building located in the desirable Twin Cities suburb of Brooklyn Park, Minnesota.
Hempel originally acquired the property as a distressed asset in 2014 alongside a joint venture partner. After making the intended capital improvements and bringing the building to stabilization, the joint venture partner elected to sell its interest in the property. Having owned, managed, and leased the property, Hempel believed in the quality and additional upside of the asset and wished to retain it, thus prompting the recapitalization.
The business plan included rolling below-market lease rates to targeted market rates, maintaining 90% or greater occupancy, and selling the asset after three years.
Strong Leasing Momentum Early On
After closing the transaction in October, Hempel immediately signed two leases for a total of 7,933 square feet, renewed another lease for 2,747 square feet, and had one tenant vacate their space. As of December 2017, the building was approximately 94% leased.
Building Officially 100% Leased
Speculative finishes added in Q1 2018 to the remaining vacant space provided the competitive advantage to successfully secure a new three-year lease in the beginning of Q2 2018, which helped the building reach 100% capacity. Going forward, Hempel planned to focus on renewing existing tenants and increasing financial efficiency through increased rental rates and reduced expenses.
From Q2 2018 onwards, the property outperformed projections and was predominantly 100% leased, which prompted Hempel to explore an early sale of the building. The property was listed for sale in Q1 2019 and it was officially sold in September 2019.
Favorable market conditions, strong leasing momentum, and successful business plan execution created the opportunity for Hempel Companies to exit the investment approximately one year earlier than planned and achieve a higher-than-projected IRR for investors due, in part, to the early exit.
*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 Quadrant Office Building offering that resulted in an approximate 30.1% (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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