Case studies

January 1, 2014

Economic indicators

The acquisition strategy of HCRE has a successful history of accessing and investing in value-added properties in strategic locations with considerable upside potential. The goal is to reposition undervalued and underperforming assets with specific geographic advantages, deferred maintenance and restrictions to the access of capital. This case study of Chapel Square in Avon, Co displays the HCRE strategy.

History

On Feb. 6, 2014 HCRE closed on 143,216 square-feet of mixed-use retail/office located in Avon, Colorado. The asset was purchased for $24.5 million from a large institutional investor based in Atlanta, Georgia who was closing out a fund.

Value-Add Identification

The proximity of the property to other HCRE holdings allowed underwriters to identify early in the discovery process significant under-market rental rates amongst the 24 tenants. Given market and economic indicators trended toward an increase in both local tourism and national employment, HCRE was positioned to capitalize on post-recession market growth.

It was further discovered that the assets recovery rate on operating expenses (calculated on a triple net basis) were 82 percent, trailing the occupancy rate of 100 percent. Subsequently, the adjusted NOI at the time of purchase was higher than provided, raising the capitalization rate to well above market. The lender ordered appraisal for the property reflected this error in their report, giving the property an estimated $850,000 of additional value at closing.

Results Driven

HCRE has successfully raised the average rental rate of the center by $3 per square-foot, increased rates on renewals by over 35 percent and increased the recovery rates on expenses to 100 percent. A bank ordered appraisal valued the property by $4 million more than the original purchase price as the property is being placed with a CMBS lender.