From Bankruptcy to Bonus: How Allegiancy Turned Around a North Carolina Commercial Property
The Nuts & Bolts Of The Story
PROPERTY: Signature Place, in Greensboro, N.C., 300,000-square-foot office building
OWNERSHIP TYPE: Tenants in Common (TIC)
2009: Debt-ridden, stagnant property
2010 AND TODAY: Stable and profitable
- Previous asset managers in bankruptcy
- Cash reserves stripped away, significant maintenance needed
- Two major tenants with large, unreimbursed bills for improvements
- Unpaid vendors
- Lagging demand in local office market from new tenants—no leasing momentum
- Loan in technical default
THE ALLEGIANCY APPROACH:
- Develop and implement turnaround plan quickly
- Address each constituent’s issues creatively, with minimal capital
- Stabilize existing tenants, get new tenants in
- Act like an owner so that value is restored
- Property now performing well, meeting debt obligations and expenses
- Building substantial cash reserves
- Visible property improvements at a modest cost demonstrate new leadership
- Existing tenants satisfied, renewed and expanded leases
- Leasing reinvigorated; occupancy went from 70 to 95 percent
The Story Of This Commercial Property
“WE HAD A BANKRUPT ASSET. WE WERE AFRAID WE WERE GOING TO LOSE IT. WE WERE IN GREAT FEAR.” -JIM CASSIDY | OWNER
Signature Place, a large office building in Greensboro, N.C., was in deep trouble. Its owners had been defrauded by a bankrupt manager. Uncertainty was rampant, and maintenance and leasing had declined so that the property was in danger of entering a death spiral.
Two major tenants, both Fortune 500 companies, had made building improvements, with the promise of being reimbursed. That hadn’t happened. The tenants were now owed $1.5 million and one was withholding rent in retaliation.
The property was in danger of defaulting on its mortgage. Major vendors hadn’t been paid. Cash reserves were non- existent. The owners were afraid they could lose everything.
“WE ARE FOREMOST ADVOCATES FOR THE OWNERS.” -CHRIS SADLER | PRINCIPAL
Based on recommendations from trusted advisors, the owners voted to bring in Allegiancy, an experienced real estate asset manager, to take back their property. Allegiancy took the assignment without pay with the understanding that they would receive their standard fees once the property was back on its feet.
Within 48 hours, Allegiancy principals were walking the N.C. property, talking with leasing agents and property managers, and visiting with tenants.
Allegiancy principal Steve Sadler said, “We knew we had to convince everyone involved that there was a new sheriff in town—one who would fix things. We had to establish trust amid the chaos by demonstrating credibility and integrity.”
The Allegiancy team immediately put together a plan and openly shared it with the owners and other key players in face-to-face meetings and phone calls. “People reacted cautiously but optimistically,” recalls Allegiancy principal Chris Sadler.
Chris added, “We take our properties personally, and we knew these owners were scared. We had to move fast to stabilize the situation, without spending much.”
Key to Allegiancy’s property triage, as well as its ongoing work, is addressing the concerns of all the stakeholders— the lenders, tenants, vendors, property and leasing managers. “But at the end of the day,” Chris said, “we are foremost advocates for the owners.”
Rolling up our Sleeves and Digging In
“WE DO WHAT THE OWNERS WOULD DO IF THEY WERE HERE.” -STEVE SADLER | PRINCIPAL
“It’s pretty simple,” Steve Sadler said. “We do what the owners would do if they were here. At Signature Place, this meant finding creative solutions that conserved capital, by leveraging our experience from managing similar properties around the country.”
As is always the case, Allegiancy found that “the devil was in the details.” But, there were also a few hidden “angels” as well. For example, Signature’s “signature” monument sign told a story of wear and neglect. But the cost to replace it was at least $10,000, more than the owners could justify.
From their personal inspection, the Allegiancy team determined that the sign’s oxidation could simply be buffed out. So instead of replacing the sign, they simply used existing staff to do that, and suddenly, the sign looked like new, without any new spending.
Lessons Learned: Numbers Don’t Lie
ON A HIGHER LEVEL, THE ALLEGIANCY TEAM UNDERTOOK SEVERAL MAJOR GOALS, WITH SOME EQUALLY AMAZING RESULTS:
HANDLE NEGOTIATIONS INDEPENDENTLY
Allegiancy found that attorneys for the property were handling major tenant and lender issues — at a significant cost to the owners, and often with adversarial results. Once Allegiancy took back the reins and began handling negotiations, they saved the property enormous legal fees and gained buy-in from much-needed allies: the lender and the tenants.
LOVE THE LENDER
Allegiancy was able to develop an excellent relationship with the lender, which offered them great freedom in managing operations and making decisions. Of course the relationship was helped by Allegiancy ensuring that the property was performing and meeting its debt obligations.
Within one year, Allegiancy successfully refinanced the property, so that the owners, who had feared losing their asset, started receiving monthly distributions.
LISTEN TO THE OLD GUYS
The Allegiancy team is quick to note that they actively listen to—and learn from—existing tenants. That apparently hadn’t happened at this N.C. property in years.
Based on what the tenants said, and what Allegiancy knew, they selected a few high-impact, high-visibility improvements, which didn’t cost much. These included targeted landscaping, refurbishing the insides of elevators, and improving curb appeal.
Most significantly, Allegiancy negotiated a settlement with the two major tenants that didn’t require the owners to come up with new capital. In fact, one tenant provided approximately $700,000 in cash in the form of pre-paid rent, which covered the needed improvements and associated taxes. With the other tenant, Allegiancy worked to eliminate the $400,000 improvement bill left by the previous manager. So the Allegiancy team effectively turned a $1.5 million liability into $700,000 in cash. Miracles do still happen.
Owner Barbara Caldwell commented: “We had gone through several property managers by this point. Allegiancy came in and allowed me to sleep at night. Under former plans, we would have had to cover millions of dollars in new expenses. Allegiancy brought the value back to our property without our having to spend anything out-of-pocket.”
GO FOR THE GOLD
Next Allegiancy was able to negotiate three existing tenant renewals. In fact, they even got one tenant to expand their space by 20,000 square feet and extend their lease by 15 years. At the same time, Allegiancy got the leasing agents’ commission reduced by nearly $200,000.
Owner Bob Burke said, “Allegiancy resolved all our major tenant issues constructively. In doing so, they increased the value of our property by at least $7 million, which is no small amount in today’s economy.”
KEEP ONLY THE BEST VENDORS
Central to Allegiancy’s turnaround was finding out which vendors were irreplaceable and which ones needed to go. Based on their expertise in this area, they re-bid work whenever possible.
Chris Sadler stated, “Our efforts to re-bid and re-evaluate all the vendors saved the property at least $150,000 a year, which adds approximately $1.5 million to property value in a sale.
As the property manager, Lori Middleton, said, “These guys understand which vendors make a property hum and they know which levers to pull to ensure the best possible performance.”
FIRE UP THE LEASING AGENTS, GRAB NEW TENANTS
A less experienced asset manager might have thought that the complete lack of cash reserves meant that new leasing was hopeless. But Allegiancy believed the opposite to be true.
By decisively taking charge and demonstrating a personal interest in problem-solving, Allegiancy had soon rekindled enthusiasm among leasing agents and prospective tenants alike.
They met in person with prospective tenants and agents and delivered proposals to them within 24 hours of the meetings, demonstrating extraordinary commitment. They offered prospective tenants a full landlord build-out, or a highly compelling alternative that limited the need for owner spending. New tenants chose the alternative.
So in the declining real estate market of mid-2009, Allegiancy signed a new 50,000-square- foot, 15-year-lease which added more than $2 million in value to the owners – because the tenant agreed to fund the costs to build out their own space. In fact, Allegiancy signed new leases worth more than $12 million, while keeping spending to a bare minimum
Amazing Ending, Promising Beginning
Today, Signature Place is performing well. It is building substantial cash reserves. It looks welcoming. Its key stakeholders speak positively about the property, expressing trust
in the leadership. Tenants are regularly renewing and expanding leases. New leasing is strong, with occupancy at 95 percent. The property value has increased by more than $10 million, with 100 percent of that accruing to the owners.
Property owner Jim Cassidy said, “Allegiancy came in and did what we all hoped it would do on our behalf—to our great satisfaction. They restored trust and value for us.”
The good news for all property owners is that Allegiancy has generated positive returns across virtually all of its properties, consistently outperforming its peer group every year. Steve Sadler explained, “Our niche is to protect the investor. We are about maximizing their return on investment with integrity. Someone has to watch out for them.”
If you own a property in jeopardy, you need someone with a successful track record. All of your stakeholders must have confidence in an experienced asset manager. That’s Allegiancy. Call Allegiancy today, and we will start executing on a plan to add value to your property.
CALL US 1-866-842-7545
10710 Midlothian Turnpike, Ste 202, Richmond, VA 23235