Case Study: Grace Place
Acquisition
In 1998, Magellan acquired an approximately 1 million SF portfolio of industrial properties located primarily at the intersection of Goodrich Avenue and Olympic Boulevard in Commerce, California (one asset was located in Vernon, California that was promptly disposed of after the purchase).
Market Opportunity
The yield on the acquisition was somewhat low at the time (approximately 6%) because the largest building within the portfolio, a 500,000 SF warehouse building leased to US Can (located on a private street known as “Grace Place”), had a 45 year lease with six years remaining at a rate 80% below-market at the time. With all of the buildings on separate parcels, the business plan was to maximize the outcome of each of the different parcels with different value-added strategies and then ultimately capitalize on the lease rollover with US Can in 2005.
Value Creation
Between 1998 and 2005, various value-added strategies were employed on the different parcels which included lease rollovers, the construction of an addition to one parcel, the rehabilitation of a 30,000 SF office building and subsequent long-term lease to the Mexican American Opportunity Fund (this building was on the same parcel as the US Can building) and several sales. As part of the negotiation with US Can, an extensive capital and tenant improvement program was initiated on the building that included a new concrete truck yard, new storefronts and offices, seismic retrofitting, loading door additions, and selected roof, skylight and sprinkler system upgrades. Subsequent to the signing of a new ten-year lease with US can in 2005, US Can was acquired by the Ball Corporation.
In addition, one of the assets within the portfolio located at the intersection of Goodrich Boulevard and Olympic Boulevard was ultimately entitled for a self-storage use and was converted into a 140,000 SF self-storage facility operated by Magellan Storage. This facility was recognized by the SSA in 2008 as “Facility of the Year”. It is still owned by Magellan today.
Results
As the Ball Corporation secured its plans to relocate their manufacturing operation from this 500,000 SF facility, Magellan sold the building and the adjacent 30,000 SF office building to a REIT in a favorably timed exit.