Opportunity

DRV became aware of an opportunity to acquire Southport Office Park located in Richmond, Virginia. The property was comprised of eleven buildings ranging in size from 5,600 square feet to 6,600 square feet and one 23,000 square foot office warehouse building, totaling 85,000 gross square feet. The property’s high current and historical occupancy provided a steady income stream sufficient to yield double-digit annual equity returns. DRV, however, saw a unique opportunity to capitalize on the wide disparity between its acquisition cost and the price at which office condominium units were trading in the market.

Transaction

DRV purchased the eleven building complex for $4,250,000 (approximately $50 per square foot). Debt financing was sourced from a local commercial bank. Equity was provided by a syndicate of private investors.

Strategy

The investment strategy was to capitalize on a low cost-basis, the availability of favorable financing and many tenants’ long-term commitment to the property by converting to a condominium and selling individual units. DRV believed that the above factors would entice a significant portion of the property’s tenants to purchase their rental spaces. Further, units not sold to tenants would represent an attractive opportunity for individual investors for the same reasons.

Results

Immediately after purchasing the property, DRV implemented a condominium regime and began marketing units for sale to tenants, prospective owner-occupants and local investors. All equity was returned within eight months. Overall, the units were sold out over twenty-eight months at an average price of $88.55 per square foot, generating a 361.3% realized IRR.