Commercial: Hadley Portfolio

For sale:

Several large buildings as well as approximately 30,000 SF of empty land in the rapidly gentrifying 3rd ward.

Deal Summary:

  • Currently occupied by a tenant in a $26k/month NNN lease.
  • Estimated Value:  $4,000,000
  • Being sold at ~10+ CAP  ($3,500,000)
  • Seller financing available (with at least 20% down)
  • About the renter:   See bio.  Additional info such as a copy of the lease can be sent to qualified buyers with proof of funds. We also have their initial upgrade plan that was sent.

Portfolio for sale includes:

  • “Community Center” – A large 2 story building with commercial kitchen, lobby, elevator, and upstairs gym + basketball court.
  • Church – Very well built structure
  • “Admin building”.  Small office type building next to the community center.
  • Single family home.
  • Close to 30,000 SF of empty land (about 72,000 total SF of land if you include the land used by structures)

The renter has been a staple in the community for a long time (see link above to bio).  He owns Houston Shop Inc., a 501(c)(3) that’s been around for over 15 years (facebook). He owns Bill Clair Family Mortuary (web / facebook).  He has a full months rent as deposit.  Most importantly, he is committed to the project, having invested his own money into the building upgrades.

The property was leased under market value due to the fact the tenant agreed to take the property ‘as is’ and perform all needed repairs at their expense without any TI budget.   This mitigates the risk of tenant default, as the property could likely be leased for more to a new party.

There are a few ‘plays’ for a new owner:

  1. Buy cash, enjoy 10+ cap return.  NOTE: if tenant exercises their right to purchase for $3.5m, the overall annualized rate of return can fluctuates between 20% and 8.5% depending on when the purchase takes place. If on the very last day, of the very last extension period, it would equate to an 8.5% annualized return.  If they don’t buy, then new owner enjoys a 10+ cap years 1-7 and 11.5+ CAP years 8-14
  2. Buy using leverage, enjoy a 28+% return on capital (assuming 25% down, 4% interest).  NOTE:  If the tenant exercises their right to purchase for $3.5m, the annualize rate of return can fluctuate between 22 and 65% depending on when it’s purchased.
  3. Buy via cash or seller financing and refi later. Enjoy cash flow with $0 in.  We do this often. This property should appraise, after some seasoning of the lease, for $4m.  At 75% LTV, an investor could get a new loan 4-6 months after purchase for ~ $3m and have almost none of their own money in the deal.  The cash flow after debt service should be about $10,000/month..   That’s $120k/year, which means the cash left in the deal would be paid back after a year of cash flow.

Common questions:

“Is this a national AAA+ credit tenant?”.   No, this isn’t a Starbucks/CVS type NNN deal.  If it was, it would be priced at a 4-5 CAP and be $6-7M.   But we believe the risk adjusted returns are very high as you’re getting over 2x the CAP while having a tenant that’s heavily invested in the deal, a property that has a ton of land backing up the value, and an asset that shouldn’t be hard to re-lease (and if an investor was concerned about ‘downtime’ between leases they could lease for the same rate vs. trying to increase).

“Why are you selling?”   If you look at our portfolio, we have mostly multifamily.  Some small, some large.  But over the years, we’ve focused more and more on larger multifamily.  So we’re looking to sell out of our properties that don’t match this description.

“Do I have any additional upside?”   Yes.  There is a ton of land that comes with this deal.  While this is not river oaks, it’s clear that this is in the path of progress.  There are new townhomes and developments all around as this property is minutes from downtown.  Also there is clear upside by simply letting the lease season.  The property is being sold well under market due to having a new lease vs established lease.  If we still have the property in 3-4 months, we will list it on the market but at a much higher price (or will simply refinance).  So the fact there is a new lease is baked into the price which allows a very quick gain of equity.

Location:  Many of the lots have “0” address.  So if you want to look at the aerial shot of the properties, you can look up 3229 Hadley St (link) on a map to sort of put all the locations into perspective. 

Some pictures below.  Sorry they’re not the best.  This isn’t an ‘on market’ deal with fancy marketing behind it.  I don’t have any pictures of the single family home (though it’s pretty small / old) or the interior of the admin center next to the community center building.

  • Address: 3229 Hadley Street, Houston, Texas, 77004 
  • Phone Number: 713-992-3997