Confirmed challenges in relation to immediate redevelopment, while concluding current condition supported short-term leasing as well as continuance of in-place leases, with no need for TI.
Office
Orange, CA
Office; Future Multifamily Conversion
Case Study Snapshot
Orange, CA
Short, mid, and long-range planning for a Class B office building with future multifamily conversion potential.
Project
Office; Future Multifamily Conversion
Square Footage
90,000+
Services
Investment Advisory, Development Advisory
01
The Ask
The client, a commercial real estate broker, was working with a pool of investors and needed a business plan for a Class B office building that presented future multifamily conversion opportunity.
02
Overview
The client's pool of investors were interested in purchasing a Class B office building sitting on a comfortable lot size, primarily because the project presented an attractive opportunity to pick up a product struggling in the market amidst excess supply conditions and weak fundamentals.
However, there were many pieces to the puzzle, that all needed to put into place to make the venture worthwhile. A residential overlay zoning allowed for a high-density residential project, but an asymmetrical/non-linear design, as well as it being a recently renovated building with over three-quarters occupancy, made taking immediate advantage of the overlay unfeasible. Quasar helped fit the puzzle pieces together.
03
Our Solution
While significant challenges existed that made venturing into the purchase of the subject property and site unsound on its face, our team knew this project was a diamond in the rough. The site had great potential, due to its location, favorable zoning that would allow for an easier entitlement process, and a comfortable lot size.
The site also had a strong tenant base and stable in-place NOI. The owner had recently performed renovations on the second floor, turning the vacant suites into spec suites that could host short-term leases. In light of this, the Quasar team crafted a detailed short and long-term business plan that would enable the prospective buyers to maximize their ROI.
04
The Breakdown
Produced zoning insights to support and facilitate future redevelopment.
Analyzed market fundamentals, amenities, and supply-and-demand dynamics to recommend short-term office leases for increasing cash flow.
Collected, verified, and analyzed financials and leasing data to recommend a five-year as-is holding period.
Aligned projections and lease expirations, as well as depreciation potential and future market trends, to produce viable exit scenarios for investors.
Risk management for base, best, and worst-case performance across all exit scenarios.
Performed robust and conservative underwriting to determine whether joint-venture target returns were met.
05
Final Recommendation
Commercial real estate deals can often be plagued with uncertainty. These deals require robust short, mid, and long-range planning. Certainty is the end goal, and investors need clarity.
In this case, Quasar provided clarity to the broker-client and the prospective buyers with our recommendation to initiate short-term leases, take advantage of the strong tenant base, and either exit with a lucrative ROI post-capital improvement or execute an attractive multifamily redevelopment. With every step made crystal-clear, our client could confidently make the deal.