Unlocking the Value of Owner-Occupied Real Estate
Many companies prefer to own real estate that is critical to their business operations. Some privately held companies choose to have the owner of the business purchase the real estate used for their business and lease it back to their company for tax reasons and asset diversification. Often, they have owned this real estate for many years. Thus, it most likely has appreciated in value. Net leased real estate assets with long term leases in place are in high demand today, as investors look for reliable cash flow, tax shelter and a hedge against future inflation. Now may be the time to consider unlocking some of the capital that is tied up in real estate to take advantage of this sellers’ market.
We were recently asked to advise a client that was preparing to sell one of their businesses. They also wanted to sell the real estate that the business occupied. Our job was to figure out how to maximize these sale proceeds. Should they include the real estate in the business sale or sell it as a separate asset?
The buyer of the business was a strong publicly traded company. They were willing to enter into a ten-year lease for the property with options to extend beyond that. Paramount advised our client on what the real estate would be valued at with a long-term net lease in place as well as to what market rent should be and other important lease terms. In turn, our client was able to compare this valuation to what the business buyer was willing to pay for the real estate. We determined that our client would maximize his return by separating the business sale from the real estate sale. Ultimately, our client entered into a long-term net lease with the entity that purchased the business. Shortly after closing on the sale of the business, Paramount listed the net leased real estate For Sale. We quickly sold the property for over asking price.
Does a Sale Leaseback Make Sense for Your Business?
If your company is occupying real estate that it owns but you want to unlock some of the value in the real estate to reinvest back into the business or use for other purposes, today is a great time to consider entering into a sale leaseback. You can structure a long-term lease for the property under terms that fit your business requirements, and then free up your equity through an investment sale transaction. With today’s low interest rates, cap rates on good investment real estate are the lowest we have experienced in decades. This translates into a higher sale price. Most businesses can deploy the cash received from the sale of their real estate back into their business. Thus, making a higher return on this capital then they would have leaving it invested in their corporate real estate.
Please feel free to reach out to a Paramount real estate professional to see if a sale leaseback makes sense for you.
Written by: Fred Hedberg, SIOR
Unlocking the Value of Owner-Occupied Real Estate
LDI Land Sale in Brooklyn Park
A new speculative industrial building is planned for Brooklyn Park and the Paramount Real Estate Corp team of Fred Hedberg, John Young, and Joe Schultz sold the land to get the project started. The Paramount team has provided real estate services to Liberty Diversified International (LDI) for over a decade. This includes leasing several of LDI’s industrial buildings and, most recently, selling the excess land in Brooklyn Park. The site is a 5.5-acre parcel at 9501 Louisiana Avenue (southeast corner of Highways 169 and 610) and the developer plans to build a 75,000 square foot state-of-the-art industrial building called Highview 610 Business Center.
Endeavor Development, founded by Josh Budish, is the developer. Groundbreaking for the property is planned for this Spring. The Paramount team is also handling leasing for Highview 610 and is marketing the building for fall 2021 occupancy. The property has have great visibility to Highway 610, will be 28’ clear height, have plenty of vehicle parking, and a spacious truck court. The building will be divisible to 15,000 square feet.
For more information about investment sales contact us at:
PARAMOUNT REAL ESTATE CORP | TCN WORLDWIDE
1650 W 82nd Street, Suite 725 | Bloomington, MN 55431
Paramount Represents Seller in Plymouth Investment Sales Transaction
Fred Hedberg, Principal of Paramount Real Estate Corp was engaged in November 2020 by SJH Real Estate, a long-time client, to sell a NNN leased property it owned in Plymouth Minnesota. The owner of SJH Real Estate had recently concluded the sale of part of his business to SiteOne Landscape Supply LLC. SiteOne Landscape Supply LLC is owned by a publicly traded company that provides wholesale goods for green industry professionals. SiteOne has a market cap of $6 billion with over 500 facilities throughout the United States and Canada. As part of the purchase, SiteOne entered into a 10-year NNN lease with two-5 year options to extend for the property that was used to operate the business unit it had purchased. During negotiations, Fred advised SJH on the best way to structure the lease. He also advised on ways to maximize the value of the real estate and make it saleable in the future.
The property, located at 1205 Nathan Lane in Plymouth consists of 8.15 acres and a 17,580 square foot showroom/warehouse building. The property’s zoning allows for outside storage. Finding a property with zoning that allows for outside storage within the I-494/I-694 loop of this size is very rare and in high demand. The zoning, financial strength of the tenant, and the long term lease made this property very attractive to investors.
Paramount Real Estate Corp/TCN Worldwide started marketing the property For Sale on November 12, 2020. Fred contacted several local investment groups he thought might have an interest in this property. He received eight offers within two weeks, the majority of which were at full asking price or above.
Selecting a Buyer
The top five buyers were asked to submit their best and final offers. Three of the five buyers were at the same price or very close to the same price. The seller decided it would be in his best interest to close on a sale by December 31, 2020. Paramount advised the top three buyers to make one more final offer. They were also asked to provide evidence they could close by December 31. Upon careful review of the final offers and discussions with each of the buyers, one was selected.
Fred and the Seller selected a buyer they felt would have the best ability to close on the sale by year end. Both parties signed the purchase agreement on December 8, 2020 with a short due diligence period. All parties worked together to get an appraisal and environmental study completed in less than three weeks. Christmas even fell within that three weeks. The sale closed on December 30, 2020 and the property sold for $500,000 over asking price.
With a time from listing to close of less than seven weeks including holidays, this was an extremely fast transaction. As the real estate world gets more complex, most transactions are taking longer. This sale is an example of how complex real estate transactions can still be completed in a short time frame if all parties work together towards a common goal. It also demonstrates the strength of the Twin Cities investment sales market and investors’ appetite for good real estate with strong credit tenants and long-term net leases.
Written by: Fred Hedberg, Principal | Paramount Real Estate Corp | TCN Worldwide
OWNERSHIP CYCLE OF A COMMERCIAL PROPERTY
WEST BLOOMINGTON BUSINESS CENTER: 6300 W Old Shakopee Rd, Bloomington, MN
The ownership cycle of commercial properties can be quite unique. In 1997, Fred Hedberg, Principal of Paramount Real Estate Corporation was asked by a past client to determine the value and marketability of some excess land that was remaining after building a mini-storage facility on a site in Bloomington, Minnesota. Fred provided a valuation and marketing plan for the land. He also suggested that his client might want to consider developing an office-showroom or industrial building on the site. The market for that type of product was very strong at that time. Fred suggested to his client that if this was of interest, he would like to co-develop and own the building with his client.
Forming a Partnership
The prospect of continuing to own the land and not pay capital gains tax on a sale was appealing to Fred’s client. It was beneficial having the opportunity to partner with a seasoned real estate professional. Who also had a good understanding of the market and kind of buildings and spaces tenants were looking for at that time. They agreed to move forward on a new development together. They began to work with an architect and contractor. Whom laid out a building on the site that would meet current market demands for space. As well as a building that would meet the test of time.
Developing the Property
After reviewing financial projections prepared by Fred, a partnership formed to move forward with the project. Construction drawings, city approvals and financing were completed and secured. The general contractor selected for the new 80,714 SF project was Kraus Anderson. The project called West Bloomington Business Center.
Completing the Project
The partners hired Paramount Real Estate Corporation to lease and manage the building. In 1998, the shell building was completed and by the end of 1999 was fully leased and built out. The building attracted well-known local and national tenants that leased the majority of the building as office space. In 1999 the building was recognized by NAIOP as a recipient of their Awards of Excellence for the Light Industrial-High Finish category. The building has performed well though the various real estate cycles that followed. It has stood the test of time as different tenants with uses other than office have found it to be a desirable building and location for their businesses.
Selling the Building
After 20 years of ownership, Fred and his partner decided that it would be in their best interests to sell the building during the current business cycle for estate planning purposes and to maximize their return on the investment. Fred found a local investor that was in need of a 1031 exchange property. West Bloomington Business Center fulfilled his exchange requirement and his desire to own a well performing, high quality asset. The property sold in August 2018. The new owner hired Paramount Real Estate Corporation to continue to lease and manage the building.
Paramount Continues to Lease and Manage Property
Fred and his leasing and property management team are excited to have the opportunity to continue to work on this project in the future. See detailed information about the space currently available at West Bloomington Business Center.
Written by: Fred Hedberg
If you would like real estate investment advice,
Hedberg Judges 2018 NAIOP Awards of Excellence
Fred Hedberg, President of Paramount Real Estate Corp/ TCN Worldwide (left-front) recently participated as a judge for the 2018 NAIOP Awards of Excellence Building Competition. Their group toured 7 multi-family and industrial/distribution properties throughout the Twin Cities. The Tractor Museum within The Moline is where this photo was taken. The Moline is a multi-family development complex in Hopkins.
The NAIOP Minnesota Awards of Excellence recognize exceptional developments by NAIOP members and their teams. In other words, a panel of judges tour and review each project in a given category. They rate on:
integration into the community
LEED certification or sustainable attributes
Paramount partnered with Make-A-Wish® Minnesota to help them find their new work space. Hear more about Make-A-Wish® Minnesota and their relationship with Fred Hedberg at Paramount Real Estate Corporation. Questions? Call Paramount at (952) 854-8290.
FOR IMMEDIATE RELEASE
Minneapolis, Minnesota – Fred Hedberg, Principal and John Young, Vice President of Paramount Real Estate Corp/TCN Worldwide recently represented MMC Property, LLC, a long term client, in the sale of the property located at 1400 Mill Lane, Waconia, Minnesota. The 98,688 square foot one story office-warehouse/manufacturing building includes 16.62 acres of land for expansion in the growing community of Waconia. The building is fully leased to one tenant.
The property sold for $4,350,000 and closed on September 27, 2017. Paramount also identified the Buyer, Eden Trace Corporation, a private investment entity from Minneapolis, Minnesota.
For more information on Paramount news, please see www.ParamountRE.com/news/.
Paramount Real Estate Corporation/TCN Worldwide is a Bloomington, MN based commercial real estate company that provides a full range of services including leasing, sales, property/asset management, project management, real estate development and investment services locally and throughout the United States.