Case Study: 920 E. Pacific Coast Highway
Market Opportunity
In March of 1998, the owner-occupant of 920 East Pacific Coast Highway (PCH), Swift Transportation Company, had made plans to relocate after selling their 163,000 SF distribution facility. This created both a risk and an opportunity for prospective buyers. At the time of purchase, the local area was experiencing abnormally high vacancy rates due to an oversupply of industrial space. The property also required significant capital improvements. At the same time, Magellan recognized the long-term value of the asset given its strategic location relative to the ports of Los Angeles and Long Beach and given the excess land available on the site (trailer parking and container storage were at a premium in this local market). Moreover, the perceived weaknesses in the market, the poor condition of the property, and the impending vacancy created a favorable buying opportunity.
Adding Value
Magellan successfully negotiated a favorable acquisition price that included a short-term leaseback from the seller and excellent seller-carry back financing. The financing structure included over $1 million in capital improvements for a new roof, repaved yard, a seismic retrofit, office improvements and other aesthetic enhancements. After completing the renovation, Magellan signed a 12 year lease with a regional logistics company.
Results
In August of 2001, Magellan sold the property for $7.4 million, representing a gross profit margin on equity of 193% and an IRR of 40%. Magellan was able to create significant value for its investors through proper market analysis, a creative acquisition and financing structure, and the formulation and execution of a value added business plan involving significant capital upgrades and re-leasing.