Winning Big for Investors
Recently, I’ve received messages from our readers asking for more details on how our ideas translate into real returns for investors. To illustrate how Alliance converts expertise into profits, I want to share the story of a recent deal.
Background
In 2013, our team identified a great acquisition target: A 25,000 square foot medical facility in the Midwest. With a reputable hospital system as the tenant and several years remaining on the lease, this property was exactly the sort of investment I love.
Our team always does meticulous research before investing, and all our analyses pointed to a long-term winner. We raised capital and closed the deal, expecting to pull in steady cash flow for years to come with a property that was very well positioned to rise in value.
The Challenge
A few years after closing on this medical facility, the tenant surprised us by signaling that they planned to leave. We did all we could to persuade them to stay, but the bottom line was that the tenant’s success meant they needed a larger facility, and there was simply nothing we could do to accommodate them in the current location.
Because the lease had several years left to run and the tenant was a reliable partner, we were still guaranteed our monthly payments. The tenant was looking to sublet for the remainder of the lease period, so we would receive our rent no matter what.
On the surface, this turn of events doesn’t look like a big problem. The property cash flow was not in jeopardy, the outgoing tenant was committed to finding their replacement, and we had plenty of time before there was any threat of carrying losses from a vacancy. Our original investment remained secure for the foreseeable future.
It would have been easy to do a patient tenant search while collecting checks, but that’s not how Alliance maximizes returns for our investors. Net lease property valuations put a premium on stable long term tenants, and we wanted to find a new one as quickly as possible.
Action
Finding great tenants isn’t easy. Sparing no effort, we found brokers with the right expertise to help us fill this specialized property. Our new brokers’ knowledge paid off when they identified another attractive prospective tenant — this one affiliated with a prestigious university healthcare system that was in the early stages of expanding into the region.
After finding such a perfect prospective tenant, we targeted a long term agreement as our top priority. To induce the university to sign, we pulled out all the stops. Beyond offering very competitive rent, we were determined to make this property as attractive as possible to this desirable prospective tenant. To that end, Alliance took out a special line of credit to finance new modifications and capital improvements, bearing the risk within our firm in order to hook the whale.
Conclusion
Our efforts were rewarded when the university signed a new 10 year lease on our property. Alliance put in a lot of hard work and took on some financial risk to seal the deal, and the result was a home run for our investors.
Our initial investment thesis called for owning and operating the facility for the long term. Losing our tenant was a blow, but by signing such a high profile new tenant to a long term deal, we dramatically enhanced the profile and value of the property. Within a few months, we began receiving buyout offers from other real estate investors, and before the university even moved into the building, we sold, netting a juicy profit for our investors.
The final tally for Alliance investors was a total return of 188% in just a few years, with an effective IRR of 17.7%. With the investment closed out profitably and ahead of schedule, our investors on that deal had the available capital and enthusiasm to reinvest their gains in our next great deal – a win for everybody.
This deal illustrates well how Alliance’s approach produces great returns. Our specialization and expertise in single tenant net lease properties enabled us to identify and close on the facility at a favorable price. Combining a focus on long term stability with relentlessly working to enhance returns, we turned a problem (vacancy) into an advantage (an even better tenant). The final result was returns that were quicker and better than expected. Once again, our investor network was pleased, and we moved into the next deal stronger than ever.
Call me at 847-317-0077, email me at [email protected], or tweet me at @benreinberg or @alliancecgc if you can submit us a property to acquire and/or would like to invest with us. For further information on investing with Alliance, please click here.
My Best,
Ben
