The Property
4801 Highway 6 South in Missouri City, Texas was a former Albertson’s Grocery store which served as the anchor in this multi-tenant, multi-owner retail development. The Albertson’s store was built on a 5.5-acre site with additional strip center developments completed by different ownership groups to the north and south of the center, as well as on a pad site. There is a common area maintenance agreement as well as several access and right of way agreements in place to manage all developments, owners, and the different management companies in place for each development.
The Albertson’s site was owned and redeveloped to serve 3 new tenants; an in-line Auto Zone Fortune 500 company, an elite athlete performance center, and a day spa/salon with multiple beauticians, stylists and massage therapists renting individual rooms within the salon.
The Challenge
The owner of the center was a professional athlete as well as the owner of the elite athlete performance center. This tenant occupied app. 70% of the project. Once the owner retired from professional sports and set his desire on new opportunities, the performance center declined in clientele and profitability, and the property was in trouble financially. The property had a commercially backed mortgage security loan (a “CMBS” loan) in place. Being a part of a bond, the special loan servicer was not particularly amenable to work out programs with borrowers who leased a majority of the center. The property was destined for foreclosure with the owner who guaranteed the loan being sued for the loan balance due.
The owner needed out of the loan and the property needed to be redeveloped and re-leased in order to create additional value.
The Solution
The property is in the fasting growing county in the U.S. at that time-Fort Bend County. The building needed to be re-leased, and the in-line Auto Zone needed to be relocated onto a pad site on the property, if possible, to make room for new tenants. With a large entertainment tenant in hand, and an agreement in principle to relocate Auto Zone from in-line, we proceeded to negotiate with the lender to purchase the property directly from them, at a price and with the proper note interest rate protection the lender needed for their bond. After 2 years of negotiations with all new tenants and the lender, we were successful in purchasing the property for the loan balance, raise the equity needed and secured bank financing to redevelop and stabilize the property. We then proceeded to finalize all new leases and construct the new entertainment center, which is a well-established theatre/eatery concept.
The Results
Our redevelopment of the site turned a failed and tired former grocery anchored property into a thriving, attractive and energetic development with the first theatre being built in Missouri City, TX. We were 100% occupied at the time of sale. We raised equity from 30 different investors, and we exceeded our investors pro-forma returns.
- Limited Partners IRR: 35.52% (Proforma: 32.81%)
- Cap Rate at Sale: 8.42% (Proforma: 10%)
- Preferred Return Paid: 10%
