Washington Square

WIP-Washington Square LLC “Washington Square” was a commercial real estate syndication around a five-story, 76,849 square foot multi-tenant office property located at 111 NW 183rd Street, Miami, Florida 33169.

This value-add office property investment was made just before the onset of COVID at the end of 2019 and exited at the end of 2022. Despite the challenges presented by leasing-up an office property during a global pandemic, with many businesses and offices sometimes closed, the team was able to largely meet or exceed projected investment returns. For example an investor of $100,000 or more, realized an annual return on investment of 26.5% versus an original projection of 23.6% in less than three years. This represented a gain of almost $77,000 on a $100,000 investment.

The December 2019 purchase was a private market transaction based on the relationship network of the SelectFinCap management team. The property was acquired at a 6.8% CAP rate, based on first year estimated operating income, for $6.1 million and at 70% below replacement cost.

Washington Square represented a value-add investment with a 40% vacancy rate at the time of purchase. Despite the high vacancy rate, the team’s risk analysis painted a favorable outlook. At the purchase price and financing terms, the existing tenant commitments put the project above breakeven, assuming no improvement in occupancy.

The anchor tenant was considered unusually stable with government related funding, and the wider tenant base also was judged to be unusually stable. Historically, tenancy had even been strong during the 2007-09 Great Recession.

Furthermore, the property was below market in terms of both occupancy and rents. Competitive nearby office buildings were 89% to 97% leased. Additional analysis found the owners had been leasing up adjoining properties partly by directing new potential tenants and even some existing tenants of Washington Square to other properties.

Prior underperformance was also attributed to a multi-family management team with little office experience mismanaging the property. In the view of the team all of this had created an artificially high vacancy rate and a uniquely advantageous value-add opportunity.

Inspections showed only minimal capex improvements required that leasing activity was projected to cover. Conservative modeling also showed at the purchase price, even achieving below market leasing and rents would achieve strong investment returns.

A motivated seller looking to exit the building created a unique opportunity to purchase an asset that the team believed was well below its market value. In addition, the team also had a positive view on the submarket supply dynamics around class C office space, as well as a positive view on the future outlook for the Miami Florida area, based on business climate and demographic fundamentals.

Nevertheless the challenges around leasing an office property during COVID, drove a greater amount of work and effort than initially expected for the team. Countless hours both offsite and onsite were spent improving the property and leasing with new tenants. The team also worked hard to take advantage of a good selling opportunity in the Miami market.

Conservative financial modeling around a five-year hold projected annual returns of 23.6% returns for an investor with a minimum $100,000 commitment. Along with successful execution of its value add strategy, the team’s analysis of the Florida Miami market was also validated as by the third year the team was able to exceed the targeted selling price and exit the investment delivering an annual return above original projections of 26.5% to those investors.