Client Profile:

Retired fashion executives with minimal commercial real estate experience in a 1031 exchange following the sale of a previously inherited mixed use building on the Upper West Side of Manhattan.

Client Objective:

Due to the fact that the anchor tenant had vacated, the relinquished property was not producing cash flow and required a significant infusion of equity to re-tenant the space and stabilize the building. The objective was to utilize the proceeds of the sale of the relinquished property to assemble a portfolio of high quality, cash flowing, net leased retail properties with minimal management responsibilities to produce income sufficient for the siblings to maintain and, hopefully, improve their quality of life.

Project Challenges:

Due to the clients’ low risk tolerance, Pegasus was tasked with assembling a portfolio of extremely safe assets that also produced sufficient yield to satisfy the cash flow requirements of the clients. After being engaged with less than thirty (30) days remaining until the 1031 identification deadline, the Pegasus team needed to identify the portfolio in an extremely short time frame due to of the extremely stringent Internal Revenue Service regulations, while also ensuring the deliverability and financeability of the identified assets. Due to the strict 180 day 1031 deadline, the Pegasus Capital Markets team needed to ensure absolute certainty of execution from the lender, while also obtaining the best terms available in the marketplace.

Pegasus Services Involved:
  • Investment Sales
  • Capital Markets
  • Asset Management
Pegasus Solution:

After being exclusively engaged by the clients, Pegasus Investments immediately scoured the market for appropriate assets throughout the country and ultimately assembled a portfolio of three (3) newly constructed, trophy quality, single tenant retail assets subject to long term net leases in desirable locations within strong submarkets. The Pegasus Investments search process consisted of leveraging its longstanding relationships with leading national brokerage firms, in addition to sourcing off market opportunities through its extensive proprietary database of commercial real estate investors. Pegasus Capital Markets arranged three (3) uncrossed, long term, fixed rate, non-recourse, interest only, assumable loans with historically low interest rates, which provided significant positive leverage and increased the cash on cash return to the sponsors, while allowing for flexibility with respect to the possible future disposition of individual assets. Pegasus Asset Management coordinated the change of ownership, which resulted in immediate and uninterrupted cash flow to the clients.

Results:

Acquisition of a geographically diversified portfolio with staggered lease expirations. The portfolio consisted of the following assets:

CVS Pharmacy The Fresh Market Golfsmith
Miami Beach, Florida St. Louis, Missouri Myrtle Beach, South Carolina
25-year lease term 15-year lease term 13-year lease term
4.60% cap rate 5.20% cap rate 5.82% cap rate
~$9.8 million ~$9.5 million $9.0 million
4.22% coupon, 10 year fixed, interest only, non-recourse 4.22% coupon, 10 year fixed, interest only, non-recourse 4.22% coupon, 10 year fixed, interest only, non-recourse