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SPRINGFIELD PLAZA

Springfield, MA

 

 

Springfield Plaza (the “Property”) is a 440,000 square-foot, grocery-anchored power center, anchored by Stop & Shop, Kmart, and TJ Maxx.  The Property is located in an urban trade area that boasts 260,000 people within a five-mile radius.  It is well-leased (90% occupied) but with value-add potential through additional leasing. Favorable pricing will allow Albany Road to complete an extensive $4,000,000 capital improvement plan that will enable the center to maintain its competitiveness in the marketplace and will encourage existing tenants to exercise lease extensions at contractually higher rents.

ADDRESS: 1225-1395 Liberty Street, Springfield, MA
SIZE: 440,000 SF
ASSET TYPE: Retail
PURCHASE PRICE: $35,000,000
SPONSOR/GP CAPITAL: Albany Road Real Estate Partners
LP CAPITAL: Davenport Realty Fund I and Individual High Net Worth & Family Office Investors
LENDER: JP Morgan; $30,000,000; 10-year fixed rate debt with 3 years of interest-only payments; all-in rate of 4.89%
ACQUISITION DATE: November 21, 2013

Investment Overview

In a competitively marketed transaction that was awarded to Albany Road due to its recent track record and ability to execute, Albany Road paid $35,000,000 ($80/sf) to acquire the Property. The pricing, which is roughly 50% below replacement cost, represented a 9.2% cap rate (unleveraged return) on in-place income.

The Property’s current income stream provides Albany Road the necessary cushion to complete a much-needed $4,000,000 capital improvement plan while maintaining favorable cash yields. The proposed improvement program includes base building work to roofs and HVAC systems, as well as cosmetic upgrades to building facades & entrances, arcade canopies & columns, lighting, parking lot and landscaping, and property signage. These improvements, among other positives, will magnify tenant identity, enhance curb appeal, and improve the overall shopper experience.

The Property has operated at an average occupancy level of 94% since 2005, which obviously includes the extremely difficult economic times experienced from 2008-2011. Throughout its history, however, not only has the Property remained leased, but it has remained leased to the same core group of major tenants.  The eight largest tenants (K-Mart, Stop & Shop, Ocean State, TJ Maxx, ACE Hardware, Savers, Joey’z Shopping Spree, and Dollar Tree) make up 65% of the center and have been tenants in the center for an average of 23 years.

As part of the closing, Albany Road also completed the simultaneous sale of the five existing rooftop leases to American Tower Corporation (NYSE: AMT) for $1,850,000. The sale to AMT not only monetized a non-core revenue stream, but it also created an arbitrage opportunity, as the sale to AMT reflected a 7.0% cap rate and the asset was bought at a 9.2% cap rate. Going forward, AMT will continue to manage and lease the roof under a 99-year easement, and we will be entitled to 50% of any revenue generated from new telecommunication leases. This will represent windfall revenue that was not factored into the underwriting.

The acquisition was financed with a 10-year, $30,000,000 loan with JP Morgan. Riding a bond market rally that saw the 10-year Treasury drop back about 15 basis points during the days leading up to the closing, the loan was fixed at 4.89%, with the first three years of payments being interest-only.  From a macro perspective, we feel that the transferable, fixed rate debt could become an increasingly valuable asset for the investment as we move through our projected 5-year hold and an expected period of higher interest rates.