OFFICE CASE STUDY
Location: Des Plaines, IL
Purchase Date: September 27, 2017
Project Returns: 33.08% IRR / 1.55x EM
Years Held: 1.59 years
1001 E Touhy is a 69,500 square foot single tenant office building that was being sold by its vacating owner as, in essence, a practically vacant office property in Chicago’s hot O’Hare market. The owner was in approximately 70% of the building and had lost a recent tenant resulting in a 24% vacancy factor. The owner’s objective was to sell the building to monetize the value of the building and relocate to a new facility within a year of disposition.
Solution & Outcome
MK Asset Investment put the property under contract with a stipulation that the seller would continue to lease the property and pay rent on its 70% of the building for a period of one year. During due diligence it became clear that the property was in need of a new roof and that deferred maintenance required attention in various aspects of the building. MK Asset also reviewed the Seller’s space needs, current operations and identified the potential to downsize their existing space thus reducing the disturbance and costs of a move. MK Asset ultimately purchased the building reducing the sellers leased square footage to 60% and provided them with an option to further reduce their space in two years by another 15%.
Upon its purchase of 1001 Touhy in September, 2017, MK Asset immediately inserted its captive management company to handle the centers deferred maintenance and embarked on a modernization of the property thru LED lighting replacement, exterior improvements including a full building repainting and new roof all while streamlining operations to achieve needed operating efficiencies. In conjunction with bringing its management expertise, MK Asset, with a third-party brokerage team leased out over 21% of the remaining space with over 80% of that space having a term of over ten years. While transitioning the property to professional landlord ownership, the original owner approached MK Asset to further discuss its space needs which resulted in an extension of their lease for a remaining term of over thirteen years and a further ability to reduce its space by only an additional 2.7%.
Having successfully converted the property to a stabilized asset with over 80% occupancy with average lease terms in excess of ten years, MK Asset has focused on a refinancing effort to monetize the value creation and hold the asset for a longer period of time. All returns are based on third-party appraisals.