Case Study: Magellan Iowa
Acquisition
In 2010, Magellan purchased a note on a property with three parcels consisting of a 309,535 square foot industrial facility at 800 Iowa Ave, a 97,920 industrial building at 1151 Palmyrita Ave, and a 1.49 acre undeveloped parcel at 950 Iowa Ave. Magellan then foreclosed and began to redevelop the property.
Market Opportunity
The 30.28 acre, 407,455 SF industrial property was located in Hunter Industrial Park, one of the largest and most rapidly developing industrial sectors in the Riverside area. The property was notable for “the largest cup in the world” that sat on the front lawn outside the large manufacturing building (the property had formally been used by the Sweetheart Paper Cup Company for many years). At the time of acquisition, the 309,000 SF building was still occupied by the bankrupt owner, the 97,000 SF metal building had several years remaining on a lease with a different company, there were one and a half acres of vacant land on the front and the city of Riverside and Caltrans were planning a major construction project on the primary artery in front of the property. This project involved building a bridge over a railroad track and was expected to have a significant impact on the property and involve the condemnation of selected portions of Magellan’s property. Given the complexity of the deal, including the requirement to acquire the note and foreclose on a bankrupt owner/tenant, Magellan was able to negotiate a favorable purchase price. And given the favorable location and the opportunity to upgrade the facility and market the facility either as one project or as three separate parcels, Magellan and its investors felt they were well poised to deliver positive results.
Value Creation
The business plan was to immediately foreclose on the property, extricate the bankrupt tenant from the large industrial building, and upgrade the facility with a concrete yard, an ESFR sprinkler system and improved aesthetics. The exit strategy was to either sell the three parcels individually or collectively after the value-added process. Concurrently, Magellan led an extended negotiating process with the city and Caltrans that ultimately resulted in a favorable settlement.
Results
After an investment of approximately $1.5 million in the 309,000 SF building and in the site, Magellan was able to negotiate a long-term lease with a credit tenant, Rustoleum. Magellan subsequently negotiated a sale of the entire property.