THE CARR AMERICA PORTFOLIO
Investment Highlights and Thesis:
$100mm acquisition in partnership with JER Partners for the repositioning of a stabilized 908,023 square foot, nine (9) building portfolio of Class “A” and “B” office buildings in the Southeast Suburban submarket of Denver. This investment entailed a closing partnership equity contribution of approximately $15.5mm adjusting for a letter of credit in the amount of $14.0mm.
Investment called for a focus on lease-up of remaining vacancies, execution of a lease restructuring with Comcast (a 157,294 sf tenant) and the execution of an accelerated disposition strategy on four of the nine assets (representing 473,251 sf) within the first year of ownership. This strategy was designed to take advantage of high occupancy rates and strong in-place current cash flows to realize “value” like returns from a stabilized, high quality portfolio of suburban office assets.
Management and Execution:
Circle is responsible for execution of the business plan as well as the day-to-day oversight of CB Richard Ellis (CBRE), which provides third party property management and accounting for the portfolio.
CBRE and Colorado Commercial Companies handle leasing within the various multi-tenant properties on an exclusive basis under the direction of Circle.
Ownership continues to strategize on how best to realize value in the sale of assets originally identified for near term disposition, and was fortunate to successfully monetize two of the identified assets at values meaningfully in excess of original underwriting. The sale of these two properties as well as various ongoing efforts pertaining to the remaining two are discussed at greater length below:
Dry Creek: Ownership benefitted from substantial capital momentum in achieving meaningful upside (in excess of $15/sf relative to pro forma underwriting) on the sale of these two assets inside of the first year of ownership.
Quebec Court I & II: These two single tenant properties totaling 287,294 sf are occupied by Time Warner Telecom (TWTC), and Comcast Corp. (Comcast), respectively, and represent the two additional assets initially identified for disposition at closing. TWTC represents a long-term below market rate lease (current rate of approximately $14/sf FSG) on a 130,000 sf Class B- asset with a lease expiration in 2015, and Comcast originally represented a short term (original expiration of September 2008) above market rate lease (former rate of $17.13 NNN) in a 157,294 sf Class B to B+ asset, both in the Greenwood Village submarket. The partnership was recently able to renew and extend the Comcast lease for a term of six years (new lease expiration in January 2015) at a starting rate of $17.50 NNN versus initial underwriting for the renewal of $14.00 NNN (with market precedent at $12.00 NNN). Further, the partnership was able to achieve this outcome as a result of a direct relationship struck with the Comcast Corporate R.E. Dept., with this representing the first time a landlord had an opportunity to deal with the Comcast team absent the involvement of a tenant rep broker – thereby saving over $800,000 in commission fees. Additionally, the partnership is working with Excel Energy to put in place an Automatic Throw Over (ATO) switch to service the premises, which will provide Comcast (and potentially TWTC if they choose to tie in) dual feed power from two separate power substations. This enhancement will greatly reduce the possibility of a complete power outage within their facility, an extremely important property feature for data center and NOC (Network Operating Center) users. When complete, these buildings will be one of only a few office buildings in the entire Southeast Denver market with this capability.
Harlequin Plaza: By successfully renewing two of the largest tenants in this building in 2008 (58,000 and 30,000 sf, respectively), the partnership has virtually eliminated lease rollover during 2009, thereby meaningfully reducing near term exposure to the market downturn. This has also allowed the partnership an opportunity to make ongoing distributions to equity.
Quebec Centre: These three adjacent properties represent 106,865 sf, and comprise the value assets within the overall Carr America portfolio. To date management has implemented a spec suite program as well as certain common area upgrades in an effort to solidify leasing within these properties. These efforts have yielded positive, albeit limited, results in what is clearly a very difficult leasing environment, with the property continuing to experience an overall deterioration in occupancy. In light of average tenant profile, this property continues to underperform Harlequin Plaza; however it has maintained its overall competitive standing with comparable properties in the submarket.