Case Study: Ball Corporation Facility
Portfolio Acquisition
In 1998, Magellan acquired a 1 million SF industrial portfolio consisting of seven buildings in the cities of Commerce and Vernon, California. Although the cap rate at the time of acquisition was considered to be at an all time low for LA County, Magellan felt that its local knowledge and value added skills combined with the right financing structure would create an excellent investment opportunity.
The buildings were constructed in the 1960's and 1970's and covered the full range of value added property types including leasing, repositioning, redevelopment and conversion. The business plan for the portfolio was to implement customized value added strategies for each building and then sell them individually over a 7-9 year period.
Market Opportunity
The core of the portfolio was a 500,000 SF, 30' clear manufacturing building with an 80% below market lease set to expire in April 2005. At the time of acquisition in 1998, Crown, Cork & Seal, one of the world's largest packaging companies, had master-leased the entire 500,000 SF building and subleased approximately half the facility to US Can, a leading can manufacturer. US Can had expressed an interest in negotiating a direct lease, and the remaining 250,000 SF presented an opportunity for repositioning into modern, multi-tenant industrial space.
Adding Value
In April, 2005, Magellan negotiated a new ten-year lease with US Can at market rents and obtained significant credit enhancements (US Can had recently gone through a leveraged buyout). Concurrently, Magellan initiated a $5 million redevelopment plan to maximize the leasing potential of the asset while creating a “like new”, state-of-the-art distribution facility. The redevelopment plan included the addition of more loading doors with state-of-the-art dock levelers, a modern sprinkler system, a seismic retrofit, new lighting, skylights, new offices, interior and exterior painting, enhanced facade improvements and landscaping, upgraded security, and a new concrete yard.
Results
From 1998 to 2002, four of the original seven buildings in the portfolio were repositioned, redeveloped and/or released and sold. Of the three remaining assets, one has been acquired by a new Magellan entity and is being converted to a Magellan Storage project. Another is a 30,000 SF office building that has been refurbished and released. It will be sold in 2007.
In March of 2006, US Can was acquired by the Ball Corporation, one of the leading packaging and aerospace companies in the world with a market capitalization of $4.6 billion. With the completion of the improvements in 2006, combined with the strong leasing and investment market, and the enhanced credit of Ball Corporation, a substantial profit is projected for this asset when sold, representing a more than 3x multiple on the investor's original equity.