By Dennis Kaiser
Faris Lee Investments, a leading retail advisory, and investment sales firm, recently completed the $6.9 million sale of a near core, not replicable legacy asset: Restoration Hardware in Irvine, CA. Rick Chichester, president and CEO, along with Tom Chichester and Joe Chichester, managing directors, represented both the Irvine-based seller and the Los Angeles-based buyer in this transaction.
Faris Lee Investments shared with Connect Media the story behind the deal. They explained how the long-term generational aspect of the real estate and the intrinsic value of the asset appealed to multiple buyers. They also describe how the sale fit into a sophisticated investor’s strategy of repurposing and rebalancing a given portfolio, to align with overall investment objectives.
“Once the well-defined investment objectives became clear, we aligned the motivations of both buyer and seller to affect a seamless and efficient transaction,” said Rick Chichester.
Q: What were the keys to this deal getting done from the buyer perspective?
A: Joe Chichester The buyer required financing to complete this sale. The key to getting this deal done from the buyer perspective, was to work with their lender / appraiser to making sure they understand the complexities of this lease, and underwrote it accordingly. We worked hand-in-hand with both lender / appraiser, and were able to get them to appropriately underwrite the asset, allowing the buyer to proceed with the close.
Q: What was the seller seeking to achieve?
A: Tom Chichester The seller was looking to achieve the highest-paying buyer that provided security in a close. We had numerous offers on this asset, and we selected the buyer that we felt would be able to achieve both of these things. We successfully accomplished this.
Q: What was the Faris Lee Investments’ ‘go-to market’ strategy?
A: Joe Chichester The go-to market strategy that we implemented was to actively market the asset to our proprietary database (one of the largest and most extensive in the nation) and all other platforms (CoStar, Loopnet, Crexi, etc.), so as to provide maximum exposure from the onset of marketing. This full-scale approach, which most competitive brokerage firms do not implement, provides the seller with the best representation, as the property is not receiving limited market exposure and potentially missing active exchange buyers. As it relates to Restoration Hardware, we were able to generate multiple competitive offers within the first week of marketing and then proactively selected the most qualified buyer.
Q: What makes this type of deal attractive in today’s market?
A: Tom Chichester This deal was so attractive to buyers in the market, because it provided for “A” real estate with a low cost per-square-foot. The market has become inundated with “B” and “C” assets, and severely lacks in “A” assets being marketed for sale. The buyer pool for “A” real estate today is extremely high, and this type of asset demands an absolute premium that will allow an owner to maximize the pricing.
The property, located in the affluent Orange County market of Irvine within a dynamic trade area, was priced below replacement cost, which gave the buyer security and future potential upside in bringing the rent to market rates.
Q: Do you see more of these types of deals on the horizon and why?
A: Joe Chichester Yes, I expect to see more of these types of deals on the horizon, as owners/sellers are starting to understand the premium they are able to get for assets of these nature. In a time of high construction costs, the focus continues to be in value-add. Investors would rather use tenant investment dollars to transform existing vacant space, instead of paying high dollars for ground-up development.