The client needed to relocate their corporate offices and while assisting in this process we discussed ACR and a slow and steady approach to building a portfolio of real estate investments. The client had acquired two pieces of investment real estate. One was used for recreational purposes. The client was very risk adverse and the basic approach was to be conservative.
Our initial acquisition was a ground leased corner property rented to a national signature on a signaled intersection. The purchase price was at a capitalization rate in excess of any comparable market sales. At the suggestion of SCRE, the client programmed his ownership as follows:
- Putting down a minimum of forty per cent
- A ten year loan commitment with only six years remaining on the initial lease term
- Creating an additional cash reserve in the last year of the initial lease term by retaining all of the cash flow after debt service to cover any costs and/or risks in excess of ACR
The next investment was to acquire a TIC ownership link to 1031 in a small strip shopping center. The internal rate of return against alternative investments was too high, to not acquire this interest.
The next investments we are seeking for the client will further broaden their portfolio and mitigate their risk in each case.