Challenge

635-675 Front St is a low-finish, multi-tenant industrial building in East County, San Diego’s extremely supply-constrained El Cajon submarket. The property was listed by another agent who did not understand the rental rate upside and mismarketed the deal, allowing the agents to unlock value at a discount through a deep understanding of market leasing activity. The property is 1.08 acres east of Interstate 8 and accessible only via Front Street.

Strategy

The agents were able to identify an opportunity for a deep value-add through renovations and leasing. The property was purchased from an owner/user who had left all tenants on dramatically below-market, month-to-month leases. Through physical improvements, the agents were able to unlock hidden value in the property and substantially increase the lease rates with little downtime. During the escrow process, the agents were able to renew four of the five spaces in the building and release the single vacancy, bringing the in-place cap rate to over 7.0% by the time of close.

Results

The value-add project capitalized on the agents’ local knowledge of East County’s industrial markets. The agents had a high understanding of the tenant base’s physical demands, low space availability in a tight market, and leasing velocity. This property was sold to Orange County investors for $6,000,000.