Characteristics
Acquisition Date: July 2016
Asset Type: Office Location: Raleigh, NC
Invested Equity: $6,221,500
Current NAV: $6,221,500 (+0%)
Investment Overview
Trinity Place is a 114,547-square-foot, Class A office building located in the West Raleigh sub-market of Raleigh, North Carolina. The building features an attractive lobby, efficient spaces, and an above-market parking ratio.
The investment strategy is to improve the tenant rent roll in order to achieve strong yields and make the asset more valuable at sale.
Key News & Status of the Business Plan
We are currently in the final phase of negotiating a 10.5-year lease with Northwestern Mutual Life Company (“NML”). Upon final execution of the lease, NML will occupy 25,000 square feet, or 21% of the property’s rent roll, and replace the majority of the vacancy left by the former tenant TEK Systems, whose lease expired in July 2017. The NML lease will push occupancy from 71% to 90%, which is in-line with proforma expectations.
The long-term duration and high-credit profile of NML is expected to be accretive to our sale price. The drawback of the lease is that NML will not take occupancy until January 2019. Although near-term cash flow is sacrificed, we believe execution of the pending NML lease is the best course of action in building long-term value.
In other leasing activity, we recently delivered an early renewal proposal to RSM McGladrey, which occupies 17,000 square feet through November 2018. We expect lease negotiations to play out over the coming months. Additionally, NeoNova Networks, which occupies 18,000 square feet through March 2019, has expressed an interest in expanding and we are currently exploring plans to accommodate them.
Return Metrics
Original Projections Current Projections
Gross IRR: 17% 13%
Gross Total Return: 112% 97%
Disposition Date: June 2022 June 2022
Financial Notes & Guidance
Our revised guidance reflects the additional downtime incurred in securing the long-term NML lease and the potential risks of not securing longer-term deals with RSM McGladrey and NeoNova Networks. The net asset value of Trinity Place will be revised once the proposed renewals and the pending lease with NML are secured.
