Wolf Commerce Center

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Situation

In January, 2010, an affiliate of Alliance Partners HSP, LLC, acquired a 505,000-square-foot industrial property (the “Property”) known as Wolf Commerce Center located near Washington DC within the Interstate 495 Capital Beltway from a lender that was taking the property through foreclosure. The Property was formerly a distribution center and warehouse for Giant Food Stores (“Giant”), a regional supermarket chain. An investor had purchased the asset when Giant vacated; however, that investor was unable to reposition and lease the property and, consequently, defaulted on its loan. The Property sat vacant for several years and suffered from severe physical deterioration.

Value Creation

  • Redevelopment – Prior to closing, Alliance redefined the lot line on an expedited basis in order to avoid taking title to underground storage tanks associated with an adjacent property, thereby mitigating environmental risk. After acquisition, Alliance completed a comprehensive $7MM redevelopment plan to reposition the property from a Class C to Class B condition. Redevelopment included replacement of the roof, demolition of non-functional space, installation of new building systems and dock doors, creation of a new fire corridor and interior layout, and refurbishment of truck courts. 
  • Leasing – By redeveloping the Property into a Class B condition rather than buying a building already in Class B condition, Alliance was able to deliver a warehouse well below replacement cost and below the basis of competitive properties, which provided Alliance the advantage of being able to offer below market leasing terms. The refurbished warehouse space represented the largest block of available warehouse in the Washington DC Metropolitan Area. Despite anemic market absorption and through an aggressive leasing campaign, Alliance successfully leased all of the 465,000 square feet of vacant space, taking the Property from 8% occupied at acquisition to 100% occupied with leases having a weighted average lease term in excess of 13 years.
  • Financing – Alliance secured a low interest rate loan with Wells Fargo to fund the redevelopment, tenant improvements, and leasing commissions. Once the Property was 100% leased, Alliance re-financed the Property with Wells Fargo and extracted 100% of its equity within 30 months of acquisition.
  • Disposition – The largest tenant (“Anchor Tenant”) had a purchase option that was negotiated as part of its lease. Though the Anchor Tenant did not prefer to purchase/own the property, it did recognize that the property had a market value in excess of its purchase option price. Consequently, the Anchor Tenant marketed the property for sale to third-party buyers trying to “flip” the Property for a quick profit. However, constraints in the purchase option and the Anchor Tenant’s lack of real estate sale experience led the Anchor Tenant to conclude that it would not maximize the value of the property.  Alliance negotiated an “win-win” agreement with the Anchor Tenant that: (i) amended the terms of the Anchor Tenant’s lease and purchase option so that the property could be more easily sold to a third-party, (ii) granted Alliance management of the disposition process; and (iii) provided for profit sharing between the Anchor Tenant and Alliance for sale proceeds above the purchase option price. Alliance closed the disposition in September, 2013, at a price that was $2MM above the highest priced offer obtained by the Anchor Tenant during its own marketing efforts, generating additional profits for Alliance.

Before / After

Before / After