In October 2017, Denholtz Properties (“Denholtz”) launched an offering for a portfolio of eight industrial flex buildings totaling 254,915 square feet and located in Orlando, Florida.
The portfolio was acquired in an off-market transaction at a significant discount to replacement cost (estimated at 50%+). Through its exclusive local network of contacts, Denholtz was able to put the Silver Star Portfolio under contract while avoiding a full marketing process, as well as a lengthy and costly closing.
The business plan included upgrading the exterior of the buildings, converting the remaining six leases to NNN as they rolled over, and increasing occupancy levels from 95% to 98% while continuing to drive rents higher. Denholtz believed that the execution of the business plan would result in a stabilized and upgraded asset in one of the best industrial submarkets in Orlando at an advantageous basis.
Early on, as expected, the portfolio continued to be well occupied with a vacancy rate of only 5% (in line with the submarket) and leasing activity remained steady—Denholtz was actively pursuing a 2,400 sq. ft. tenant at a rent rate 15% above underwriting. Construction drawings for the proposed facade renovations were completed and pending pricing. In Q1 2018, an immediate clean up of the existing landscaping was completed, with a more extensive landscape improvement plan underway. In addition, Denholtz was designing plans to clean up a few of the vacant units to prepare them for a quick lease up. With Silver Star's strong performance and financial position expected to continue, Denholtz continued to make monthly distributions to investors at an annualized rate of 8%.
Throughout the remainder of 2018 and 2019, Denholtz continued to execute the business plan, painting all eight buildings and remodeling many of the units. As existing lower rate leases expired, Denholtz entered into new leases with higher rents per square foot. Overall, leasing activity remained strong and occupancy high (above 90%) in line with the market which continued to be extremely tight for available space.
As a result of the strong performance, in late 2019, Denholtz announced that a lender had provided a term sheet to refinance the project. The refinance was made possible by
the increase in overall average per square foot rental rate and further enhanced by the functional and aesthetic exterior improvements since acquisition. The new loan not only locked in a low interest rate and provided the project with ample cash reserves, but also allowed for a significant distribution in late January 2020, which returned approximately 13.8% of initial investor capital.
Although distributions were suspended out of an abundance of caution for 3 months in early 2020 due to the pandemic, the investment continued to perform well and overall the COVID-19 impacts on the portfolio were minor. Denholtz was able to collect a full 97% of all amounts billed from April through December 2020, and rental rate climbed steadily and stood much higher at the end of Q4 2020 in comparison to Q4 2019.
In March 2021, Denholtz informed investors that the portfolio was under contract to be sold to a multinational and respected real estate investment company. Denholtz believed that the execution and strong market conditions had yielded an incredible opportunity for it to sell these assets and produce outstanding returns for investors. The sale transaction closed in April 2021.
Highly successful business plan execution, opportune refinancing, and strong market conditions created the opportunity for Denholtz to outperform underwriting and successfully exit the investment after an approximate three and a half year hold, producing higher-than-projected 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 Silver Star Portfolio offering that resulted in an approximate 26.8% (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.
The report partially relies upon the sponsor’s explanations, the information contained within sponsor-produced quarterly reports, and conference calls. This analysis is not an assertion of independently verified facts but, rather, is for informational purposes only, to convey CrowdStreet’s understanding of what transpired.
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