Next Realty recently completed two dispositions allowing it to return investment capital to its investors.
The first disposition was the sale of the Fiserv Building in Nashville, TN. This property was the first acquisition of Next Realty Fund IX, LP which, at the time, represented an opportunity to add value by extending the short-term lease with the tenant.
In September 2017, Next Realty acquired this 51,000 square foot industrial building occupied by a subsidiary of Fiserv, Inc., a Fortune 500 company. In acquiring the property, Next drew upon its local Nashville market knowledge and experience. Fiserv has occupied the space since 2005, manufacturing credit and payment cards at the property. In November 2021, after nearly a year of negotiations, a ten-year lease extension was finalized.
The lease extension created an optimal time to sell the asset. The property was sold to an institutional investment fund at an initial cap rate of 4.42%.
Over the 4.5-year holding period, the sale resulted in a property level Net Internal Rate of Return of approximately 22.4%, and a Net Return Multiple of approximately 2.3x to the investors.
“Fiserv showcases our successful assessment that the purchase of this single-tenant industrial asset would add to the diversification of asset classes within our portfolio, leverage our local Nashville market knowledge and benefit from our asset management expertise,” said Eteri Zaslavsky, Next Realty Managing Director.
The second disposition was the sale of a single-tenant building occupied by a Best Buy store in Deptford, NJ. Next Realty acquired this 61,000 square foot building in 2001, taking a risk purchasing a fractures investment, first closing on the land (no income for 15 years!) and then the leasehold interest. Both positions were governed by a cumbersome, 13-property “unitary lease” to Hechinger stores that included this particular property which was subleased to Best Buy.
In 2002 a win-win proposition was formalized and executed, resulting in a new, direct 20-year lease with Best Buy, thus removing both parties from dealing with a complicated lease structure. Earlier this year a ten-year lease extension was negotiated with Best Buy. Like the Nashville property, the lease extension created an optimal time to sell the asset.
The property was sold to a private investment fund at an initial cap rate of 5.81%.
Over the 21-year holding period, the sale resulted in a property level Net Internal Rate of Return of approximately 40.7%, and a Net Return Multiple of approximately 9.8x to the investors.
“Deptford Best Buy holds a special place for our company and our early investors. When we purchased the property, we combined the ownership of the ground lease with that of the building that were controlled by unrelated entities, thus forming the basis for the current fee simple ownership structure. After successfully negotiating a long-term lease extension with Best Buy, we determined it was an optimal time to market the property for sale to close out the partnership. We were happy that it allowed us to provide a significant and final return to our investors,” said Next Realty CEO and Managing Principal Andrew Hochberg.
