Orange, CA
Office
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.
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.
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.
The Breakdown:
Physical Feasibility
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.
Leagl Feasibility
Short-Range Planning
Mid-Range Planning
Long-Range Planning
Sensitivity Analysis
Capital Stack and Underwriting
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.