IRVINE, Calif., October 20, 2016 – Faris Lee Investments is pleased to announce the successful close of escrow on a highly complex real estate transaction that has resulted in the $56.6 million sale of a legacy quality shopping center in the south Orange County city of Rancho Santa Margarita.
The center, Plaza El Paseo at Rancho Santa Margarita Town Center, totals approximately 107,000 square feet of building area and is occupied by a diverse mix of tenants. Built in 2002 and situated on 10.56 acres at the corner of El Paseo and Alma Aldea, the asset is anchored by Bed, Bath & Beyond, BevMo, and Wood Ranch BBQ. It is centrally located within the one million-square-foot Santa Margarita Town Center, one of the region’s most successful master-planned retail developments, and is adjacent to Kohl’s and the Rancho Santa Margarita City Offices.
Rick Chichester, Nicholas Coo, and Chris DePierro of Faris Lee Investments created the comprehensive deal strategy on behalf of both the seller, K&G El Paseo 1 & 2, LLC, and the buyer, Plaza El Paseo Center, LLC.
Faris Lee’s President & CEO Rick Chichester noted that the deal presented multiple challenges from a financing perspective. “Plaza El Paseo was encumbered by a $32 million conduit loan featuring an above market interest rate,” said Chichester. “This encumbrance had limited the buyer pool when previously marketed by a different firm, and therefore demanded a more creative strategy to meet the seller’s objectives.”
DePierro added: “Our strategy involved having the buyer assume the existing loan—thus saving the seller more than $6 million in defeasance penalties. It also required over $24 million in cash to the existing loan – significantly more equity than is typical for similar assets subject to new financing.”
In order to overcome this challenge, Faris Lee created a business plan around Plaza El Paseo. The plan provided a strategic vision that focused on creating value through upgrading tenancy to appeal to the area’s higher end demographic as current leases expired. Faris Lee advised on the hiring of a new leasing team to market to potential new tenants, and also advised on appointing a new property management group to further implement the business plan. This process generated promising new tenant activity and a vision for long-term success and stability, despite losing tenants during the escrow period.
Although the typical buyer for an asset of this class would have been institutional, due to the existing financing obstacles, Faris Lee targeted a sophisticated private buyer pool and marketed heavily to its proprietary database of high net worth individuals, family offices, and 1031 exchange buyers. The campaign garnered significant interest and a private buyer was identified.