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  • Bill Herr

Opportunistic Midwest Real Estate Annual Strategy Update

Opportunistic Midwest Real Estate is a Growth Series Invesment

In 2015, the Fund made four acquisitions and now owns a good portfolio of properties in diverse locations with a diverse tenant base. Each of the properties represents quality real estate purchased at favorable prices. The work has now begun to add value to the properties through capital improvements and new leasing. A particular success so far for the Fund has been Dakota Plaza, which is now 95% occupied. On the other end, Madison and Edgewood has been a tough property to get out of the starting block and build some momentum.

From November to February, the Fund successfully added Century Plaza in Lisle, Illinois, Hazel Crest Shopping Center in a suburb South of Chicago and Roebuck Plaza in Birmingham, Alabama to the portfolio. Properties that fit the criteria of the Fund are harder to find as the economy has strengthened, so it is uncertain whether the Fund will acquire any more real estate in 2016. If so, fundraising activity may cease in the first half of the year and the Fund will focus solely on operations and leasing leading to the successful disposition of the Fund’s properties.

Individual Property Investment Updates:

Madison & Edgewood Shoppes—Indianapolis, Indiana (28,069 SF)

As previously reported, the fund manager had a rough start to ownership of Madison & Edgewood this year. Early on, they lost two struggling tenants to bankruptcy. While the tenant's long term viability was in doubt when we closed on this purchase, the timing occurred quicker than we anticipated. These vacancies, however, gave the fund manager an opportunity to combine multiple suites together for one large space adjacent to Kroger to lease to a stronger tenant that can add value and vibrancy to the center. During the fourth quarter, the manager executed a lease renewal for the nail salon as well as completed a major new lease with Pet Valu for the former Blockbuster space. The Kroger remodel was also completed in the fourth quarter which included a grand re-opening celebration. While the sale of a pad site to Kroger for a gas station is progressing slowly, Kroger is looking to finalize the purchase contract in early 2016. In the surrounding market, the fund manager saw the addition of two new apartment complexes adjacent to the property. The complexes are maintaining high occupancy rates and high rent, adding value to this region of Indianapolis. All of this combined activity is providing a positive outlook for Madison & Edgewood in 2016.

Dakota Plaza—Austin, Texas (21,700 SF)

Multi-family development continues to occur around the property. This activity is beneficial to the neighborhood tenant mix, and Dakota Plaza is performing as expected per the business plan. The new developments have positioned Dakota Plaza as one of the most desirable, highly visible retail centers in the trade area. In the early part of 2015, the fund manager agreed to terms with Happy Wok for one of the remaining vacancies at the property. They are working to secure all necessary permits and approvals for their tenant finish which is expected to take place in the early part of 2016. Current tenant, Maxim Integrated Products, is still unsure as to whether they will be consolidating offices and exercising their early termination right at the property. In the fund manager's business plan, they underwrote this tenant leaving so a key objective for 2016 is to design a backfill strategy should they vacate. The manager's primary leasing goal for the property remains to find quality tenants that will compliment the neighborhood focus and drive new foot traffic to Dakota Plaza.

Northwest Crossing—Garland, Texas (33,336 SF)

This property was purchased in July of 2015 and has undergone significant property improvements over the fund's short ownership period. These improvements included a new roof, parking lot work and landscaping upgrades. As anticipated, this has resulted in increased leasing interest at the property. This is evidenced by the Pediatric Dentist opening for business and Vapor Club signing a 3-year renewal. Additionally, the fund manager agreed to terms with a new restaurant operator to lease a 2nd generation restaurant space at the property. The fund manager's leasing efforts have benefited from a Chamber of Commerce membership. This membership is an additional avenue toward getting the fund's leasing flyer in front of the community. This flyer is posted on the Chamber of Commerce's website and Facebook page and offers members a preferred Landlord ‘partner,’ highlighting special rates, our Sustainable Green Initiatives Program and a property beautification plan. With all of this, the property is performing as expected per the business plan in the fund's first year of ownership.

Century Plaza — Lisle, Illinois (15,464 SF)

Century Plaza is a recent acquisition and is currently performing as expected per the business plan. Located in Lisle, Illinois, this property was purchased on November 24, 2015. Century Plaza is located on a busy arterial street in the dense area of Lisle, Illinois. The property’s location is about 15 miles west of Downtown Chicago. The fund manager expects to capitalize on this excellent value add opportunity by implementing an aggressive lease up strategy and completing various property improvements. The fund can offer tenant improvement funding to potential new occupants unlike the lender that had taken over ownership prior to purchase. The property is currently 66% occupied with 11 inline spaces, four of which are vacant. Dunkin Donuts is working to obtain necessary building permits for their drive thru and plan to begin construction in the first quarter of 2016. Upon their opening, the fund manager will partner with Dunkin Donuts for a grand opening event designed to showcase the new tenant and introduce the fund manager to the community as the new owners of the property. In 2016, we will upgrade the landscaping to increase pylon sign visibility and help drive additional traffic to the shopping center. The fund manager is also making repairs to the parking lot and sidewalks that have been an eyesore.

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