What a Retail Break-Up Strategy Sale Looks Like

IRVINE, CA—Retail advisory and investment sales firm Faris Lee Investments has completed $11.5 million in sales of 3 different properties within the Central Plaza Shopping Center in Lake Elsinore, CA. Three difference buyers picked up these properties — a single tenant net lease Marshalls (which traded at a 6% cap), a STNL Panera Bread (4.75% cap) and a 2-tenant sale of Pieology & Ono Hawaiian BBQ (5% cap).

The newly constructed 7.33 acre, 66,000-square foot shopping center is one of the main commercial hubs serving not only Lake Elsinore but also Temescal Valley, Canyon Lake and Wildomar. It was 100% pre-leased to national tenants upon commencement of construction.

In order to maximize value and increase the buyer pool, the Faris Lee team advised the owners during the planning stages to consider a break-up sales strategy—that is, to sell in parts vs the whole, as the sum of the parts are of greater value than the entire package.

“A break-up strategy allows for new and unseasoned investors or buyers to purchase a single tenant asset as a part of a larger successful shopping center that they probably couldn’t afford as one large investment,” Chris DePierro, managing director with Faris Lee Investments tells GlobeSt.com. “It gives opportunities to new investor types in the retail investment community.”

Faris Lee first tried this strategy over 20 years ago, when a client had a $100 million offer for his retail property.

“We said we can break it up and get you $30 million more and our client gave us the green light,” says Jeff Conover, senior managing director at Faris Lee. “He walked away from a $100 million offer just because we said we could get him more money and we delivered by indeed getting him $30 million more.”

Besides bringing in more money, a break-up strategy typically achieves lower cap rates because of the lower sales price. Furthermore, with a smaller price point, financing is taken out of the equation as most buyers will have the cash.

“Instead of one sale, it’s multiple sales. We are now getting calls from owners across the country. Chris and I are currently working with clients all over the US including the midwest and the south/southeast,” says Conover.

“With the Central Plaza Shopping Center, we were able to secure buyers and have the properties pre-sold while the center was under construction,” Conover says. “Furthermore, the pre-sales benefited our developer client providing them the ability to pay-down debt and move some proceeds into the next project.”

“Central Plaza was ripe for a break-up strategy” says DePierro. “All the tenants are national / credit NNN leased in nature with long term leases, providing for a secure and stable investment.”

In addition to the sale of these 3 properties, Faris Lee investments is currently marketing at Central Plaza a STNL Ulta Beauty, STNL Skechers Outlet and a STNL Five Below.

“We were also able to generate and close with 3 different 1031 exchange buyers by marketing through their 1031 exchange buyer national platform,” says Conover.


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