In 2012, the occupancy at Potrero Business Center was only slightly above 80%. The in-place rents were significantly below asking market rate due to long term tenancy in place. Owner was cash-strapped with no ability to sign any new leases that would require tenant improvements. With the lack of cash flow and years of deferred maintenance, Potrero Business Center was slowly becoming distressed.
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Two-Story Office Building
Ownership decided to seek help from Morrison Street Capital, LLC, an investment arm which manages a series of private equity funds. As a secondary lender providing preferred equity, B notes, bridge loans and mezzanine debt, Morrison Street Capital was able to structure a deal with Ownership to rescue Potrero Business Center.
Morrison Street Capital’s initial challenge in February, 2012, was to replace the existing property management company with the previous management company, whom had experience managing Potrero Business Center years prior. After six (6) months of transition with the hope of stabilization, the commercial property management company did not uphold to Morrison Street Capital, LLC’s standard and expectations. In September, 2012, Kidder Mathews of California, Inc., dba Kidder Mathews met with Morrison Street and was hired to manage the project as of October 15, 2012. Both the Kidder Mathews property management and brokerage team took a hands-on approach with Morrison Street on enhancing the value of Potrero Business Center.
Kidder Mathews spruced up the park and attracted a vast variety of new tenants representing a wide spectrum of industries. New tenant leases were executed along with tenant renewals at current market rate. Kidder Mathews increased recovery income by 20% over 2012. Kidder Mathews performed the construction management services totaling over 1 million dollars in tenant improvement and building improvements.
In order to meet the market demand in San Francisco, we demised a large warehouse space to six separate units, we managed all aspects; from separating electrical to obtaining permits. Each project was managed within budget with no overages and was delivered to the tenants on time. In total, 9 leases were executed in a one year period, increasing occupancy from low 80’s to high 90’s with leases in place to reach 100% by 3rd quarter of 2014.
The winning combination was a joint effort amongst the hard work and dedication of both Morrison Street Capital and Kidder Mathews. Due to the increased occupancy, significantly higher in place cash flow, the property was placed on the market for sale at the end of 2013, which led to the sale of Potrero Business Center at a premium price.