The complex transaction involved four separate buyers, active and abandoned oil wells and a seller that will continue to manage the asset.
IRVINE, CALIF. – In one of the most complex retail transactions during COVID-19, Scott DeYoung and Jeff Conover of Faris Lee Investments completed the sale of Signal Hill Gateway in Long Beach to four different buyers for a total of $28.3 million, which is a 5.27% cap with a 5% vacancy factor. All sales closed within 75 days from beginning to end. The high-performing, triple-net urban infill community center was re-parcelized to achieve optimum pricing for the seller, Signal Hill Petroleum, which ultimately received 99.3% of Signal Hill Gateway’s list price despite the pandemic.
Signal Hill Petroleum will retain ownership of a one-acre parcel within the shopping center that contains active oil wells and drill sites. The first-in-class oil operator will also stay on as Signal Hill Gateway’s common area maintenance manager to ensure a smooth transition to the new buyers. Faris Lee helped the buyers and seller reach a common area maintenance (CAM) sharing agreement and amended the center’s covenants, conditions, and restrictions (CC&R) to create efficiency for multiple landowners in this fully occupied, 100% national credit tenant shopping center.
Craig Barto, CEO & President of Signal Hill Petroleum, said “Scott DeYoung and his team at Faris Lee did an excellent job creating and implementing a shopping center break up strategy for the sale of our large shopping center in Signal Hill. Scott navigated us through this complex sale which involved a multi-year break-up of the Center, which made the sale of this large property even more profitable. Faris Lee worked exceptionally well with our Team at Signal Hill Petroleum in all facets of this complex transaction. This was an all-hands-on deck effort to close all four transactions within 75 days from the first closing to last.”
Scott DeYoung, managing director of Faris Lee, who represented Signal Hill Petroleum along with Jeff Conover explained “Active oils wells are not common for shopping center sales in Southern California but in Signal Hill it is quite common. The Los Angeles Basin is one of the most prolific oilfields in the World and the developer has found a unique way to make oil production and vibrant retail development successfully co-exist. This break up strategy and re-parcelization helped the seller achieve the pricing it was looking for even through the Covid-19 pandemic, while the CAM management role will provide an additional revenue stream for the Seller.”
Though these weren’t your run-of-the-mill transactions, Faris Lee was able to successfully navigate obstacles associated with the COVID-19 pandemic, current retail environment, and oil wells and easements by remaining focused on Signal Hill Gateway’s intrinsic real estate value and national credit tenant mix. “With Scott’s guidance and Signal Hill Petroleum’s high-quality management, we were able to complete four separate transactions with four separate buyers and maintain management of the Shopping Center. I have personally known Scott for over 25 years and know him to be extremely hard working and have the highest degree of honesty and integrity. I look forward to working with him and his team on future real estate opportunities!” Barto said. All four closing were with 1031 exchange buyers that were all located in Southern California.
“This center sits on an irreplaceable Southern California urban infill location off the 405 freeway and Atlantic Blvd. with strong demographics,” DeYoung said. “By utilizing Faris Lee’s national marketing platforms and educating the buyers and their representatives on the oil easements, we were able to overcome many of the challenges that helped the seller obtain the favorable pricing and terms that Signal Hill Petroleum was able to achieve.” About 79% rent of the current tenants had recently executed options to extend at Signal Hill Gateway, which is a testament to the strength of the tenants and the trade area. Signal Hill Gateway is anchored by Home Depot and also features an In-N-Out, which were not included in these sales as both tenants own their own real estate.
Located at Atlantic Blvd and the 405 Freeway in Signal Hill, CA which is an incorporated City adjacent to Long Beach, the shopping center was divided into four product categories prior to listing. These included the big box parcels, a QSR & daily needs strip, a sit-down restaurant and a drive-thru fast food restaurant.
Details of each transaction follow.
Big Box Parcel (Ross, Petco and Dollar Tree)
This three-tenant box parcel generated multiple offers and closed at 99.2% of the listing price. This ultimately led to a 6.05% cap rate for the seller and future upside for the buyer as two of the three tenants pay below market rent. The Buyer completed their 1031 exchange and closed with a conduit lender.
QSR & Daily Needs Strip (Starbucks drive-thru, Chipotle, T-Mobile, Bank of America ATM)
This parcel generated multiple offers and sold for a 4.87% cap rate, which was 99.5% of its list price. The escrow was less than 30 days and the Buyer was able to execute with financing on time for their 1031 exchange. Despite an active oil well and pipeline easements under this parcel, the seller was able to achieve a close to list price sale with short-term leases that ranged from three to five years.
Sit-Down Restaurant (Applebee’s)
The sale achieved a 5.10% cap rate, representing one of the lowest cap rate sales in the country for a casual dining concept during COVID-19. This single-tenant, absolute triple-net ground lease is operated by an entity of Flynn Restaurant Group, the largest Applebee’s franchisee in the U.S. It generated strong offer activity despite the indoor dining closures in California.
Drive-Thru Fast Food Restaurant (Jack in the Box)
The Jack in the Box parcel generated multiple offers and closed at a 4.38% cap rate. This Jack in the Box was a corporately operated and leased location with approximately less than 10 years remaining of initial term on the lease.
About Faris Lee Investments
Faris Lee Investments is a national leading retail advisory and investment sales firm. The company’s high-level retail investment advisors and sophisticated financing experts develop forward-thinking strategies for all retail acquisitions and dispositions and guide clients through complex transactions. Through its recent strategic partnership with X-Team Retail Advisors, a nationwide affiliation of seasoned retail leasing experts, Faris Lee offers a fully integrated platform with disciplined expertise in landlord leasing, tenant representation, capital markets, and investment sales to maximize value for clients. For more information, visit www.farislee.com.