Case Study: Creating a Great Property Profile
Alliance recently closed out another great deal: $2 million profit and 25% IRR for our investors. This deal highlights some of our team’s great strengths, and I am proud to share the story.
We found the medical property up for sale with a few years left on the lease. The tenant was a small medical practice that had recently been acquired by a big health system. With such a short time left on the lease, uncertainty around the lease renewal was holding down the property’s price. It was important to secure a (good) new lease to elevate the property’s market value.
Our team went to work and determined that the tenant likely wanted to stay in place. They had recently financed their own facilities upgrades, and we believed the market was under pricing this property. With such an attractive price, we decided to buy, and we quickly got to work negotiating that lease renewal. We felt confident we could quickly find a good new tenant based on available zoned medical properties in the area.
There were several sticking points. To maximize property value, we like to lock in long-term commitments, but the tenant pushed hard for a shorter lease of 10 years, maximum. Tenant creditworthiness was an issue too. The tenant was newly owned by a subsidiary company of the big medical group mentioned above, and that subsidiary had a less than sterling credit rating. For this reason, we needed a guarantor to back the lease.
These points weren’t easy to resolve, and the old lease expired while we were negotiating. With additional penalties now due on top of the normal rent, and the tenant showing no signs of preparing to move out, we knew we were on the right track. When the big medical group refused back the lease because of a corporate policy, we got creative and found a workaround. The parent company eventually agreed to guarantee the lease with a different subsidiary, with no problematic corporate policy and a great credit rating. With that red flag addressed, we settled on a 10 year deal and a significantly higher rental rate.
Once the deal came together, we knew we had a property profile that was going to turn a nice profit. Our deep understanding of the market helped us see the potential and deliver for our investors. Alliance brought together top-notch research, great lease negotiating skills, creative problem-solving, and persistence. This deal really showed what we can do, and I could not be more proud of my team.
