Property

Value-Added Case Study

Seaview Corporate Center
San Diego, CA

 

Introduction

The Parallel Capital Partners team has had a successful history of accessing and investing in value-added office properties. Our goal has always been to reposition the property within its marketplace and to maximize its value. In short, we migrate value-added properties to core investment status. This is the story of one of those properties – Seaview Corporate Center.

Seaview Corporate Center

The Parallel Capital founders acquired Seaview Corporate Center (Seaview), a five building Class A office campus in the Sorrento Mesa submarket of San Diego, CA with 356,504 sq. ft. of rentable space on April 23, 2002 for $71.9 million ($215/sf.). Seaview is one of the top three institutional-quality Class A office campuses in the San Diego area but at the time of acquisition had only a 75% occupancy rate. 

The seller, Lennar Partners, acquired the property in 1996 with the intention of developing phases II and III – approximately 240,000 square feet. The difficult California entitlement process took significantly longer than planned and ultimately eliminated the value of the operating partner’s promoted interest. With a fractured partnership, the seller chose to market the property for sale.

Our VOP and HOOPS Programs

Immediately after closing on the property, the Parallel Capital team implemented its Value Optimization Plan (VOP) and High Occupancy Optimization Plan (HOOPS) with the following specific actions:

  • Relocated our corporate office on-site. This generated substantial brokerage traffic and helped reintroduce the newly-owned/renovated asset to the San Diego real estate community. 
  • Demolished approximately 60,000 sq. ft. of existing, non-market tenant improvements in one of the older buildings. 
  • Renovated the Fitness Center with new shower and locker facilities, slate floors, and weight training equipment, and refinished the lap pool and tennis courts. 
  • Hosted a broker Open House to reintroduce the local brokers to the property. 
  • Created and implemented a broker incentive plan that resulted in an increase in occupancy to 92% by the end of the first 18-month period. 

Our Performance 

Seaview Corporate Center was purchased for $71,885,000 and an additional $4,632,632 was invested to reposition and re-lease the buildings. The total investment of $76,517,632 was funded with $38,417,632 in equity and $38,100,00 of debt financing. 

Seaview was sold for $92,135,000 ($258/sf) on June 29, 2004 to a real estate investment fund managed by a national insurance company (the “Insurance Company”) The net sales profit was in excess of $15,617,365, which, when added to the operational cash flow during the holding period, resulted in an unleveraged IRR of 15.5% and a leveraged IRR 24.3%. 

Follow-up…the Re-purchase

After holding the property for five years, the Insurance Company came under pressure to dispose of some of its real estate assets due to a dramatic increase in redemption requests. As a result, Seaview was put on the market in early 2009 with an asking price in excess of $110 million. By late 2009, with no satisfactory offers, the listing was terminated and the selling process was stopped. 

We had other transactions with the Insurance Company and closely monitored their situation and the aborted sales attempts. Our acquisition team felt the owner would find an off-market transaction that closed quickly (before year-end) attractive even if the price was significantly below their expectations. 

In late Q4 2009, we were able to acquire Seaview for a second time. The purchase was completed from LOI to closing in 45 days accomplishing the Seller’s objective of a year-end close.  The purchase price was $75 million ($210/sf) – more than 40% below the estimated $127 million ($356/sf.) replacement cost. Based on the in-place Net Operating Income, we acquired Seaview at a cap rate in excess of 10%. 

We sold Seaview for the second time for $109,000,000 ($306/sf) on December 12, 2011 to a large financial services company. The net sales profit was in excess of $34,000,000, which, when added to the operational cash flow during the holding period, resulted in an unleveraged IRR of 21.0% and a leveraged IRR 40.8%.