RANCHO SANTA MARGARITA, CA—Much of Faris Lee Investments’ business plan for the Plaza El Paseo shopping center at Rancho Santa Margarita Town Center here entailed educating the buyers on the strengths of the local trade area, the firm’s Chris DePierro tells GlobeSt.com. In part 1 of this exclusive two-part interview, we spoke with the firm’s Nicholas Coo and president and CEO Rick Chichester about dealing with challenging loan-assumption scenarios, based on the intricate deal the firm negotiated for the center despite a $32-million encumbrance. In part 2, below, we spoke with DePierro and Chichester about the business plan and helping buyers see a long-term vision in retail properties.
GlobeSt.com: You created a business plan for Plaza El Paseo prior to bringing it to market. Can you provide an overview of what that entailed?
Chichester: As with each asset we bring to market, we began by making sure we understood and confirmed the goals and objectives of the seller as well as his risk tolerance. Next, we underwrote the property from a holistic view of what influences value: the economy, the investment market, the real estate market, capital markets, local market dynamics, tenant demand and finally, the complexities and nuances of assuming low-leverage CMBS debt. We also worked to create value through upgrading tenancy, hired a new leasing team to market to potential new tenants and advised on appointing a new property-management group to implement the plan. Finally, we identified the buyer profile that would best align with the attributes of the asset, and we underwrote the value of this asset to support the specific goals of this buyer pool. In this case, the buyer pool we identified was a private, high-net-worth individual focused on generational planning with a defined long-term investment objective.
Chichester: “We believe that real estate is not a commodity and should never be underwritten as though it is. Every property and every buyer and seller is unique and distinct at any given point in time.”
GlobeSt.com: How did this plan help potential buyers to see a long-term vision for the asset?
DePierro: From a macro standpoint, a lot of our business plan entailed educating buyers on the strengths of the Rancho Santa Margarita Town Center trade area, which is enjoying tremendous growth as seen with the Rancho Mission Viejo development. Coupling this attribute with the lack of future commercial development in the area and a vacancy level below 3% enabled buyers to realize that from a micro property level standpoint there will always be tenant demand and the ability to upgrade tenancies.
GlobeSt.com: Regarding upgrading tenancy, did new lease negotiations happen in tandem with the marketing and/or escrow process?
DePierro: Yes. During both the marketing and escrow periods, the asset benefited from the upgrade of a few new tenants, which will strengthen the center from both a credit and overall synergy standpoint.
GlobeSt.com: Is this process something Faris Lee does for all properties you market or it only under special circumstances?
Chichester: We develop a business plan for each assignment and each property. We believe that real estate is not a commodity and should never be underwritten as though it is. Every property and every buyer and seller is unique and distinct at any given point in time. Understanding this and underwriting from a holistic and comprehensive view creates value and manages risk for all parties.