Thread by @jandreini1

Below is an incredible story thread about a great deal gone wrong.

In what used to be one of the best locations in the world.

And what it took to save the deal from disaster.

Goes a little something like this:

#retwit #cre

The year is 2017 and the subject project is a leasehold interest shopping center with a strong tenant line up that includes Starbuck’s, Chase, Burger King, Subway, and other nationals backed by franchisees.

It is one of the most well known locations in America on Michigan Avenue in Chicago centered above Millennium Park, home of “The Bean” sculpture.

At group of a investors come together to acquire what is in effect a public/private partnership with Chicago’s Metropolitan Transportation Authority (METRA) to master lease the property for 75 years.

Within 30 days of closing, 75% of the leases were extended out on new 10 year terms with annual rental increases.

Operations were going great, rents are growing, distributions are flowing…..then COVID hits.

....And we own a strip center....in a subway station.....below high-rise office buildings...during shelter in place.  With public transportation and office traffic ground to a halt….the deal is looking hosed.

So here’s what happened next:

1) Negotiated a deferral in loan payments with bank - loan default crisis averted.

2) Negotiated a deferral of master lease payments & passed on the savings to the mop and pops - these tenants and their livelihood's have a shot at survival.

This bought just enough time for the market to pick back up in early 2022 and the asset was sold, which returned the investors 100% of their initial proceeds.

Lessons Learned:

1)  Be very transparent / over communicate with tenants, bank, partners, investors, etc.
2)  Gross leases can destroy value over time particularly with property taxes and inflation.
3)  The importance of maintaining property level relationships with tenants,… twitter.com/i/web/status/1…

The best deal I did in 2022 is this one where I made $0 profit as the GP, but protected investor capital and tenants in a time of despair and against all odds.

The result? The main tenant is still a friend, many of those investors made new investments, and the lender financed two more deals post close.