It was 2017 and this property was listed with CBRE. I wasn't fully committed to working on multifamily/residential projects. I presented this property to a few of my development partners, and nobody wanted to pursue it. The consensus was this was an extremely ugly office building. What I saw was 1.062 acres of land in a good location listed at $17.83 per square foot and an extremely ugly building sitting in the middle of Salt Lake City proper.
We decided to move forward on our own without a ton of experience in multifamily. We went under contract and got to work analyzing the site for the best use. We were buying from a local credit union and if you don't know pro tip: credit unions & banks sell lots of great things that often get ignored. I'll never forget the site walk with the manager for the credit union. He was my conduit to info on the property. I asked about what we might expect as potential new owners. His response was that the building is terribly inefficient, but I had probably figured that out by now. That was true. He went on to tell us everything was fine; it was just a little weird when the hookers show up in the Spring and the “John’s” line up in their cars down Major Street which sort of blocks customers from entering and exiting the parking lot. What? I ask if SLC has a hooker problem having no knowledge of this beforehand and he lets me know that the site is "right on the 50-yard line" of the action in SLC.
We decide the deal looks good either way, so we fund 40% and borrow 60% and buy it January of 2018. We move the office here and sure enough spring hits and the "talent" hits the lawn. Wild! Everyday just after lunch sure enough there is a line of “John’s” nearly every single day of the week down Major Street to engage with the talent. The talent is camped out on the front lawn area you can see in the above image. Fancy cars, not so fancy cars, company cars, city cars are lined up daily. The customer analysis sides of our brains take over and from our perspective it appears these “retailers” span every socioeconomic segment of the market.
No sooner had we closed on the land than multiple multifamily developers start chasing us hoping to buy the site from us. We do some more investigation with some local land brokers and figure out we did ok on our purchase. We engaged with the party we thought was the best fit for the site that planned to demolish the office building and build townhomes in its place. This developer is a family member of one of our long-time partners and clients.It is an easy choice for us to make.
We close in May of 2019 at $40 per square foot which is quite a step up from our acquisition price at $17.83 per square foot. We exit the project with $1,039,864 in cash and end our part in this site with a 135.68% IRR for the deal. The finished townhomes look fantastic and were a great project for the developer we sold to as well. You can see the finished project of their work here.
We are currently in a very difficult time in the market cycle and with all the changes that Covid brought to the world office space has been suffering more than any other asset class. Many office buildings are starting to become available as the market is shifting and changing. Keep an eye out for those in good residential areas. These can provide amazing infill development opportunities to the smart buyer. On these types of plays the money is typically made on the purchase so be sure to buy cheaply and do thorough due diligence on each site.
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