In January of 2017, an Ohio-based private investor contacted Westwood President, Chris Schellin, for advice in preparation for his upcoming 1031 exchange. As a general contractor, this investor owned (and continues to own) a large portfolio of apartments and sought to diversify his investments into NNN properties.
Being a prudent investor, he had begun exploring and informally identifying replacement properties prior to divesting. However, he quickly realized that his online searches for properties created a conflict of interest; he was contacting listing brokers, who in their role representing the seller, did not necessarily have his best interests in mind.
He found Mr. Schellin through his searches and discovered that he could receive objective advice, education, knowledge, and advocacy – all without any expense.
Mr. Schellin spent time getting to know the investor and educating him on the nature of NNN investments: deciphering what was a good property and bad property. The investor came to us with a basic understanding of price and cap rate, then we explored and helped him learn the deeper nuances of risk, responsibility, termination dates, opt-out clauses, CAM, and more.
He specified a desire to invest in Ohio, Kentucky, Indiana, or the metropolitan Charleston (South Carolina) areas.
Mr. Schellin evaluated and scored his risk tolerance and educated him on the wide variety of investments available, reviewing each asset class in his price range including the positives and negatives of each type of property.
Our team reviewed more than 20 properties before finding the perfect solution: a one-of-a-kind two-tenant center with a Chick-Fil-A and an AT&T store. Typically, Chick-Fil-A goes for a 4 to 4.25 cap rate, but we were able to diversify into two tenants with a higher cap rate because of AT&T’s presence.
As this property it was a 2-tenant building, we were faced with a more complicated NNN deal. It required more CAM details such as expenses for parking lot, landscaping, utilities etc and then cross referencing the lease to make sure making sure there was no “slippage” in either lease. The goal of any multi-tenant retail center is accounting for all expenses and thus confirming no surprises during the first year of ownership for our clients.
As a value-added step in our process, our broker located a credit
union in Dayton that provided the financing; we sourced both property and lender. The 2.7-million-dollar closing went smoothly, within 45 days.
In the end, the investor was extremely happy:
- He deferred significant capital gains in the six-figure range;
- He transitioned from a management intensive investment to a new opportunity with a similar yield but less hands-on responsibility;
- Both of his low-risk tenants are operating with great stability;
- And the amazing part: the property was located 20 minutes from his residence.