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280 Second Street

280 Second Street, Los Altos Office Building

Value Add

Purchased:
2005 for $7,500,000. Capital Source:
WVP Private Equity Investors.

Refinanced:
2015.  Appraised Value:  $13,300,000 

Location:
Los Altos, California

Returns:
6.0%-7.5% distribution to investors during initial 10 year period
10 year IRR of 16.17% based on appraised value at refinance

Background:                 

·       Strong downtown core Los Altos location.

·       On acquisition, the building was majority leased to Packard Foundation at significantly above market rents from the dot com days.

·       Major tenant, Packard Foundation, did not occupy any leased suites at acquisition and had subleased to multiple office tenants.

·       Packard Foundation lease expired within a year and they would not be renewing since they were purchasing their own building to occupy.  The out of area owner was concerned about the majority of space turning over at one time.

·       West Valley would occupy one of the vacant suites for their own use.

·       Acquisition Cap rate was 14% on current rents but 6.4% cap on market.

·       Business plan was to acquire the building, build cash reserves through over market rents for short period, renew as many existing Packard sublease tenants as possible upon lease expiration.

·       Excess cash flow realized from above market cap rate was to be put into cash reserves for a later remodel of the building.

Strategy:                 

·       Renew as many existing Packard sublease tenants as possible to reduce turnover costs and vacancy.

·       Upon expiration of existing leases, convert existing Full Service leases to NNN leases.

·       Design a more updated look for the building including new façade, pull out the entry to expand lobby, accented with glass front doors and new stone, redo elevator surround and interior, all new updated bathrooms with improved lighting.

·       Take advantage of the stronger office rental market in one of the best parts of the Bay Area


Action Items:                 

·       Excess cash flow stored and paid for entire remodel.

·       Leases successfully converted to NNN.

·       Remodel of façade, lobby, elevators and bathrooms completed

·       Post remodel timing was ideal to take advantage of spike in rents experienced in Silicon Valley.

·       Improved quality of tenancy with foundations and other stronger tenants.

Result: 

·       Investor distributions from 6.0% to 7.5% on invested capital for 10 years.  

·       Upon refinance, building was valued at $13,300,000.

·       Project Multiple of 3.7x on original investment.

·       10 year project IRR of 16.17%

 

Photographs:

                BEFORE                                                                                                         AFTER