Sentinel Net Lease, LLC (“Sentinel”) is acquiring an 86,910 square foot office building on 3.66 acres in Austin, TX for $10.6MM ($122/SF), which is substantially below replacement cost.
Although there is currently a tenant in place until September of 2022 (see below), our plan is to renovate, re-tenant, and sell the property over 2.5 period. Once renovated, we anticipate the property’s curb appeal and central location in Austin will be attractive to numerous firms expanding in or relocating to Austin looking for a high-quality office with reasonable lease terms relative to the overall market. We are raising $5.64MM in LP equity for this transaction. Investors will be segmented into two investor classes, as noted below.
•Class A Investor: Minimum Investment $250,000. 10% Annual Preferred Rate of Return. 65% of Profit Thereafter.
•Class B Investor: Minimum Investment $50,000. 10% Annual Preferred Rate of Return. 55% of Profit Thereafter.
Note that there will be multiple capital calls as construction progresses and only 50% of the invested capital is due at closing. Target closing date is December 29th, 2021.
CURRENT TENANT STATUS
The property is currently occupied by the Texas Higher Education Coordinating Board, who has given Notice of Termination and will vacate the building on September 30th, 2022.
Sentinel plans to renovate and re-tenant the building in two phases and sell the property after the new tenant has taken physical occupancy. This renovation will allow us to increase net rents from approximately $13.09 psf (current lease) to an estimated $22.50 psf. We anticipate selling the property for approximately $30MM in two years (based on an estimated exit cap rate of 6.5% and projected NOI of $1,955,475).
PHASE I – EXTERIOR RENOVATION & LANDSCAPING PLAN
•We expect to submit plans for the exterior renovation and landscaping in February 2022, with construction beginning by May (subject to the current tenant’s permission). Once complete, we will begin marketing the property to new tenants. If we are unable to begin exterior renovations prior to the current tenant’s lease expiration, we will begin marketing with conceptual renderings once approved by the City of Austin.
PHASE II – INTERIOR RENOVATION
•We expect to execute a lease with a new tenant prior to the end of 2022. Interior renovations will be contingent on an executed 10.5-year lease with a new tenant.