Featured Property
Arlington, Texas
Westway was an 8 building, 354,000 square foot flex portfolio bought from an institution. It was a combination of 5 late 1980s era flex buildings, 1 two-story Class B office building, and 2 new Class A flex buildings. One flex building was substantially vacant, and the other was completely vacant (and had been for 2 years). The owner had lost momentum and was unwilling to be creative to fill the vacancies. A 10 year conduit note was put in place at a very low interest rate (5.05%). Within 9 months, we had leased the majority of the vacancy, actually attracting a 100% office user into the vacant flex building by offering a rental rate far below the office buildings the tenant was considering elsewhere. Although the office build-out was substantially higher than budget, so was their rental rate, creating substantial value. Additionally, our assumable loan featured a rate well below market, also adding value. Westway was sold in 21 months, more than doubling investor equity.
Welcome to Urban Southwest Capital
With our combined 50 plus years in commercial real estate, the principals of Urban Southwest Capital have experienced every market cycle since 1980. We are thus keenly aware of real estate's potential volatility and therefore focus on those relative few transactions which offer low risk yet potential for solid returns. During the last 10 years, we have purchased 30 properties, with a combined purchase price of $159,510,000. These investments required $39,000,000 of equity and had an average return of 91% in the 25 properties we sold. Our average hold was only 28 months, yet we were able to double our equity in most cases.
We are proud to have achieved these consistent results, demonstrating the discipline to avoid marginal deals many of our competitors would pursue in order to generate fees. Rather, choosing to pursue only the most worthy transactions as they present themselves.
Our core products are multi-tenant office, flex, and industrial which can be acquired at significant discounts to replacement cost. However, the properties must have inherently good leasing characteristics with limited or no functional obsolescence. We pursue solid assets which, for whatever reason, have fallen into decline. Often times, these properties are owned by small investor groups which may be undercapitalized or who lack the sophistication to correct a struggling asset. However, just as often, we buy from large institutional owners who lack the focus and hands-on approach which makes our management successful.
These next few years should offer unprecedented buying opportunities.
We will continue to pursue the quick turnaround. These acquisitions will generally have vacancies of 15% - 30% and going-in yields in excess of 5.0%. Through renovation and aggressive leasing, we expect to stabilize and dispose of these assets within 36 months, generating annualized returns in the 20% range or higher.
However, with a somewhat sluggish leasing market, we believe a 5 - 7 year hold may be appropriate in many cases. In these situations, we will focus on high quality, Class B+ to A assets, which due to a lack of available financing can be acquired cheaply. We seek a minimum occupancy of 80% and a minimum yield of 6.5%, planning to acquire these with no more than 65% leverage. We believe these will appreciate considerably, a very conservative investment which should generate compounded IRRs in the mid-teens over a 5 - 7 year hold.
Finally, we also plan to acquire highly distressed assets which can be purchased for a small fraction of replacement cost. These buildings could be entirely vacant, for example, and there would be little or no debt available in such cases. As we have the ability to close all cash, we expect some fantastic opportunities in that regard.