Case Study: Torrance @ 190th
Market Opportunity
This 8.6 acre, 194,000 SF industrial property was a manufacturing facility for the Standard Brands Paint Company in northwest Torrance. Standard Brands went through bankruptcy and this asset had been foreclosed on by Transamerica, one of the firm's creditors. Transamerica was unable to sell the asset because of some lingering environmental issues. The property was located on 190th Street, adjacent to Hawthorne Boulevard, the primary retail corridor in the South Bay submarket of Los Angeles. Magellan was exposed to the property shortly after Home Depot had fallen out of escrow. The situation required a rapid response.
Adding Value
Magellan's familiarity with environmental issues and ability to move rapidly gave it a significant competitive advantage. Magellan accepted the seller's asking price of $8.3 million and agreed to waive the environmental contingency within two weeks. The environmental risks proved to be manageable and Magellan proceeded with an expedited closing.
Given its superb location, the property had enormous potential. The original business plan called for the redevelopment of the property into a multi-tenant industrial park, with the further potential for the conversion of one of the buildings into a self storage facility, subject to obtaining a Conditional Use Permit (CUP). While initiating this plan, housing developers began making offers on the property. However, Magellan concluded that the entitlement process for housing was too long and uncertain, and that the original business plan provided the best risk adjusted return for its investors.
Specifically, that plan involved converting the 108,000 SF building into a multi-tenant industrial facility and converting the 86,000 SF building into a 126,000 SF, two-story self storage facility. The value creation opportunity on the 108,000 SF building was optimized through the creative use of interior truck wells to overcome site constraints, the reallocation of site parking to accommodate a retail use, the successful application for two CUP's needed by two of the three new tenants, and the implementation of an excellent leasing program. For the self storage conversion (Magellan's first), Magellan assembled an outstanding development team that completed a project which has enjoyed both significant industry acclaim (the MiniStorage Messenger's “2004 Facility of the Year” award) and market success.
Results
The project has reached stabilization and is being refinanced for a long-term hold. Following this refinance, all of the equity capital will be returned to investors along with preference and a profit distribution. The investors intend to hold the project due to its steady income stream, and Magellan Storage has established a branded, flagship facility for future cash flow and growth.