ILS Capital Equity Fund Class A
High Mark Shopping Center – Dayton, TN
Investment Opportunity
Following successful investments in multiple other commercial and retail properties, ILS Capital discovered an opportunity to invest in a stabilized Neighborhood Resource Center with enormous upside potential.
The 110 square foot retail property on 27+/- acres in Dayton, TN presented many perceived advantages of ownership including:
- 100% occupancy by “internet resistant” tenants
- Great visibility with multiple ingress/egress points, including a signaled intersection
- Estimated traffic of over 20K vehicles per day
- Recent completion of parking lot reseal and property refresh facelift
- Located in a town experiencing strong economic growth fueled by corporate expansion expected to bring hundreds of new jobs to the area
Investment Strategy
The investment strategy involved continuing to manage the stabilized property, slightly increasing the rental rates upon lease renewal.
Property will be financed at 70% of the purchase price to maximize returns with operating expense projections accounting for higher interest rates at the 7-year reset period if it’s held that long.
The sale of up to 5 out-parcel lots during the hold period and the final divestiture of the asset expected to drive significant capital events for investors.
Financial Highlights
- Price: $7,725,000
- Price Per Square Foot: $69.71
- Current Net Operating Income: >$720,400
- Cap Rate: 9.326%
- Investor Partner Capital: $2,463,513
- ILS Capital Investment: $275,000*
- *ILS Capital invests our own money alongside our Investor Partners.
- Estimated Hold Period: 5 Years
- Target Rate of Return to Investors: 15-20% Annualized Over the Project Hold Period
- Total Projected Investment Partner Return Upon Sale: 82.783%
- Projected Annualized Non-Compounded Return: 16.557%
Acquisition
- Purchase Price on 5/22/23: $7,725,000
- Appraisal Value on 5/22/23: $8,630,000
- Estimated Equity upon Purchase: $905,000
- Set Aside Capital Expenditures: $309,000
Property Hold Period Updates
| Q3′ 2023 | The cost of a broken sewer line repair $400,000 was covered out of cap ex budget and operating capital A non-refundable option fee of $50,000 was received for the sale of one out-parcel lot. Buyer has an exclusive 15-month option to purchase the land for $550,000 |
| Q4′ 2023 | Cost Segregation Analysis accelerated over $2.7 million from 39-year depreciation schedule. $1 million was accelerated to a 15-year schedule, $272K to a 5-year schedule. $1.4 million is on an immediate depreciation schedule (land). Pending legislation is likely to create additional acceleration of depreciation. |
| Q1′ 2024 | Another out-parcel lot was sold for $1,150,000. Proceeds used to pay down debt and accelerate roof repairs 2 years ahead of property maintenance schedule. 40% of property now has new roofing with 20-year warranties, creating a stronger position for an earlier sale than originally planned. |
Summary Conclusion
The Highmark Shopping Center in Dayton, TN showed very healthy positive equity upon initial purchase. This was due to some careful planning, sizing analysis, and negotiation of the original deal with the sellers. Since acquisition, money received from the sale of one out parcel lot and another deposit received for a second lot sale have greatly accelerated the maintenance and upkeep plan and debt paydown schedule. This, and the significant depreciation gains identified through a Cost Segregation Analysis have positioned the Highmark Shopping Center to likely deliver returns to investors far greater than originally forecasted.