Executive Office Park

Office Park

From Vacancy and Tenant Loss to Cash-Flow Positive

Challenge

This office park was suffering a 45% physical vacancy in a 20+% available sub-market due to the loss of two major long-term tenants. The cash flow was insufficient to service the existing debt and the Debt Service Coverage Ratio was at 0.5x. The loan was maturing and required significant capital investment to attract new tenants and stabilize the property. To complicate things, the existing institutional venture partner had no interest in investing any additional capital into the property and specifically requested to be bought out.

Add to these financial circumstances the fact that the office complex was originally built by the grandfather of the 3rd generation owner, and our challenge became even more personal–preserve a family legacy and local landmark.

Goals

THG helped the owner focus their goals:

  • Restructure the loan so as to retain possession of the property and the building that their grandfather had built
  • Neutralize the owner’s strong emotional attachments and focus on objective compromise
  • Restore the office park and update the buildings to Class A tenanted space
Execution

After 12 months of complex negotiations with the loan Special Servicer, The Henley Group closed on a sub 50% discounted payoff for the 125,641 square foot office park. The loan, written originally for $16MM, was paid off for $6.9MM; the adjusted price per square foot (psf) cost was reduced from $160 psf to $55 psf.

Outcome

Due to the significantly reduced discounted payoff price and the newly created per square foot low-cost basis, the client was able to refinance the property debt with a local bank. Additionally, the owners were able to attract a new joint venture partner who shares their investment philosophy. The two are now working together on new investment opportunities.

Since then the owners are 50% through a $1.5 million renovation project that has infused a more contemporary feel to the building and has largely contributed to the repositioning of the property as the area’s premier office park. The landlord has secured several substantial tenants,), bringing occupancy to 92%. Given the property’s new tenants and significantly lower basis, the property has returned to cash flow positive.

The new investors are thrilled with the stabilization of the property and impressed by the owner’s ability to quickly turn the property around.

Do you want to…Save your property? Avoid a foreclosure?
Buy time to find new tenants? THG can make all these things a
reality like we did for this executive office park. You’ll like the ROI.
Contact us.

*References are available—just ask us.