In March 2016, SMARTCAP launched an offering for a 97,653 square foot, mixed-use office and industrial business park in Seattle, Washington.
The business plan called for increasing the parking ratio, improving internet speeds by bringing Comcast Internet and Wave Broadband services into the building, leasing the remaining vacancies, and increasing rental rates from below market to at or near market rates over the projected five-year hold.
At acquisition, the property was approximately 86% occupied with average leases through 2019, giving the property strong cash flow and stability at purchase. This gave SMARTCAP the necessary time to implement their strategy to increase and maintain high occupancy, as well as raise rental rates at lease renewals.
Following the first full quarter of ownership, SMARTCAP had made significant strides towards executing the business plan. The plan to increase parking had been well received, resulting in strong leasing activity and higher rental rates. Four new leases were signed, bringing occupancy to 100%. The strong start allowed SMARTCAP to issue a distribution for Q3 2016 at an annualized rate of 8%.
By the end of the third quarter 2017, SMARTCAP had completed all of the originally planned major improvements to the property. The business plan was working much faster than anticipated and SMARTCAP was signing leases at significantly higher rates compared to original expectations. The property continued to operate extremely profitably, allowing SMARTCAP to make regular quarterly distributions to investors.
In May 2018, SMARTCAP received an off-market offer from an institutional client to purchase the property. Prior to selling the asset, SMARTCAP weighed the potential future value of the asset, remaining deferred maintenance risk to the property, as well as the five-year cash flow model against the significant premium paid by the buyer. Although there may have been some additional upside in the coming years, SMARTCAP believed eliminating the risk was the right decision to make given the tremendous profits the early sale would generate for investors.
The high-quality nature of the asset, combined with a successful business plan execution and favorable submarket conditions created the opportunity for SMARTCAP to successfully exit the investment earlier than planned, achieving strong returns for investors, including a higher-than-projected IRR.
*Net of fees
This report contains explanations of a series of events associated with SMARTCAP’s South Seattle Business Park offering that resulted in an approximate 128% (net of fees) absolute return on original equity 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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