Joshua Village Shopping Center is a 97,000 s.f. neighborhood shopping center located in Yucca Valley, California. Anchored by a major grocer, the center includes two fast food outparcels and in-line shop space. Joshua Village is situated on a major state highway linking several desert communities to Interstate 10 in the Inland Empire region.
Presidio Property Trust acquired Joshua Village In an off-market transaction in September, 2011 for $6.6 million, which represented a capitalization rate of nearly 10%. The center was 93% leased. This acquisition excluded an in-line drug store which was owned by another investor. We were subsequently able to acquire the drug store property off-market in May, 2012 for approximately $1.1 million. At the time of acquisition, the drug store had vacated but was still obligated to pay rent for several more years.
In September 2012, Presidio Property Trust entered into a letter of intent with a major national retailer to lease the drug store building at a lease rate 3% higher than drug store’s rent for a 10 year term. This benefited the property by adding a long-term credit tenant draw replacing a weaker short-term tenant which had vacated the property. We then negotiated a buyout agreement with the drug store resulting in a significant early termination penalty paid to Presidio Property Trust.
In 2015, one of the fast food outparcel tenants vacated upon lease expiration. Within 7 months, Presidio Property Trust leased this property to another national fast food operator under a new long-term lease at a rent 23% higher than the previous tenant’s rent. In 2016, recognizing the aggressive valuations of NNN leased investments, we sold this outparcel to an investor at a 5% capitalization rate.
Presidio Property Trust refinanced the center in 2015 with a new $6 million loan. The lender’s appraised value was $9.3 million. The two fast food pads (which were excluded from the refinancing) were appraised at $2.5 million, resulting in a total appraised value for the combined center of approximately $11.8 million – 53% higher than the combined purchase price.
Also in 2015, NetREIT sold the other fast food outparcel for $1.5 million, which represented an approximately 5.25% cap rate.
CHALLENGE AND OUTCOME
Excluding annual cashflow received, the refinancing and outparcel sales alone resulted in a 1.27x return on Presidio Property Trust's invested equity, and we continue to own the property which is currently valued well in excess of the initial investment.
VALUE INCREASE FROM ACQUISITION TO 2016