2020 HURLEY WAY SACRAMENTO, CALIFORNIA

Transcription

1 OFFERING MEMORANDUM 2020 HURLEY WAY SACRAMENTO, CALIFORNIA CAPITAL MARKETS INVESTMENT PROPERTIES New assumable loan in place $6,425,000 ($107 psf) 7.31% cap rate on current income 87% leased

2 affiliated business disclosure and confidentiality agreement AFFILIATED BUSINESS DISCLOSURE CBRE, Inc. operates within a global family of companies with many subsidiaries and/or related entities (each an Affiliate ) engaging in a broad range of commercial real estate businesses including, but not limited to, brokerage services, property and facilities management, valuation, investment fund management and development. At times different Affiliates may represent various clients with competing interests in the same transaction. For example, this Memorandum may be received by our Affiliates, including CBRE Investors, Inc. or Trammell Crow Company. Those, or other, Affiliates may express an interest in the property described in this Memorandum (the Property ) may submit an offer to purchase the Property and may be the successful bidder for the Property. You hereby acknowledge that possibility and agree that neither CBRE, Inc. nor any involved Affiliate will have any obligation to disclose to you the involvement of any Affiliate in the sale or purchase of the Property. In all instances, however, CBRE, Inc. will act in the best interest of the client(s) it represents in the transaction described in this Memorandum and will not act in concert with or otherwise conduct its business in a way that benefits any Affiliate to the detriment of any other offeror or prospective offeror, but rather will conduct its business in a manner consistent with the law and any fiduciary duties owed to the client(s) it represents in the transaction described in this Memorandum. CONFIDENTIALITY AGREEMENT This is a confidential Memorandum intended solely for your limited use and benefit in determining whether you desire to express further interest in the acquisition of the Property. This Memorandum contains selected information pertaining to the Property and does not purport to be a representation of the state of affairs of the Property or the owner of the Property (the Owner ), to be all-inclusive or to contain all or part of the information which prospective investors may require to evaluate a purchase of real property. All financial projections and information are provided for general reference purposes only and are based on assumptions relating to the general economy, market conditions, competition and other factors beyond the control of the Owner and CBRE, Inc. Therefore, all projections, assumptions and other information provided and made herein are subject to material variation. All references to acreages, square footages, and other measurements are approximations. Additional information and an opportunity to inspect the Property will be made available to interested and qualified prospective purchasers. In this Memorandum, certain documents, including leases and other materials, are described in summary form. These summaries do not purport to be complete nor necessarily accurate descriptions of the full agreements referenced. Interested parties are expected to review all such summaries and other documents of whatever nature independently and not rely on the contents of this Memorandum in any manner. Neither the Owner nor CBRE, Inc, nor any of their respective directors, officers, Affiliates or representatives make any representation or warranty, expressed or implied, as to the accuracy or completeness of this Memorandum or any of its contents, and no legal commitment or obligation shall arise by reason of your receipt of this Memorandum or use of its contents; and you are to rely solely on your investigations and inspections of the Property in evaluating a possible purchase of the real property. The Owner expressly reserves the right, at its sole discretion, to reject any or all expressions of interest or offers to purchase the Property, and/or to terminate discussions with any entity at any time with or without notice which may arise as a result of review of this Memorandum. The Owner shall have no legal commitment or obligation to any entity reviewing this Memorandum or making an offer to purchase the Property unless and until written agreement(s) for the purchase of the Property have been fully executed, delivered and approved by the Owner and any conditions to the Owner s obligations therein have been satisfied or waived. By receipt of this Memorandum, you agree that this Memorandum and its contents are of a confidential nature, that you will hold and treat it in the strictest confidence and that you will not disclose this Memorandum or any of its contents to any other entity without the prior written authorization of the Owner or CBRE, Inc. You also agree that you will not use this Memorandum or any of its contents in any manner detrimental to the interest of the Owner or CBRE, Inc. If after reviewing this Memorandum, you have no further interest in purchasing the Property, kindly return this Memorandum to CBRE, Inc. DISCLAIMER 2016 CBRE, Inc. The information contained in this document has been obtained from sources believed reliable. While CBRE, Inc. does not doubt its accuracy, CBRE, Inc. has not verified it and makes no guarantee, warranty or representation about it. It is your responsibility to independently confirm its accuracy and completeness. Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future performance of the property. The value of this transaction to you depends on tax and other factors which should be evaluated by your tax, financial and legal advisors. You and your advisors should conduct a careful, independent investigation of the property to determine to your satisfaction the suitability of the property for your needs. CBRE and the CBRE logo are service marks of CBRE, Inc. and/or its affiliated or related companies in the United States and other countries. All other marks displayed on this document are the property of their respective owners

3 transaction contacts Randy Getz Executive Vice President Lic Matt Post Senior Associate Lic CBRE, Inc. 500 Capitol Mall Suite 2400 Sacramento, CA cbre.com/invsacramentocommercial CAPITAL MARKETS INVESTMENT PROPERTIES table of contents I. executive summary... 4 II. property overview III. financial IV. selected tenant profiles V. area overview & market trends... 28

4 Executive Summary 2020 Hurley Way

5 the offering CBRE is pleased to offer for sale an 87%-leased, two-story, atrium style office building in one of Sacramento s most convenient suburban locations. Upside potential comes from repositioning the asset, leasing the remaining space, raising rents to market, and optimizing expense recaptures Hurley Way is presently leased to 23 businesses including several legal and medical practices. The Property can easily accommodate many types and sizes of businesses with suites ranging in size from 850 to 5,500 square feet. Tenants enjoy the Property s pleasant landscaping with flowing water and koi pond, free parking, affordable rent, and the abundance of dining, shopping, and business services within a short distance. The Property is offered for sale at $6,425,000 ($ psf) which represents a capitalization rate of 7.31% on current net operating income of $469,377. There is potential income growth from freshening the Property and raising rents to market as new leasing and renewals take place. Average rent in place is $16.22 psf/year while average asking rent among nearby office properties is $ Our 10-year discounted cash flow analysis based on moving rents to market projects NOI growth of 83% between year-one and year-10. Some of that growth is attributable to increasing expense recaptures, as several tenants are on full service leases without any reimbursement provision. 5

6 offering summary PROPERTY TYPE Two-story suburban office ADDRESS 2020 Hurley Way Sacramento, CA NET RENTABLE AREA 60,133 square feet CURRENT OCCUPANCY 86.6% OFFERING PRICE $6,425,000 ($ psf) CAPITALIZATION RATE Current: 7.31% Stabilized: 8.19% 10-YR YIELD Cash IRR: 12.12% Leveraged IRR: 19.78% DEBT IN-PLACE New debt February 2016 Principal amount: $4,500,000 (70% LTV) Interest rate: 5.15% 30-year amortization Matures February 2026 YEAR BUILT 1976 CONSTRUCTION TYPE Wood-frame PARKING STALLS 203 (four of which are handicap spaces) PARKING RATIO 3.37/1,000 sf 6

7 EXECUTIVE SUMMARY investment highlights Value-add pricing: $6,425,000 represents a 7.31% capitalization rate on income in place. The key to acquiring any value-add asset is a cost basis low enough to permit Ownership to compete aggressively for every tenant requirement. At an asking price of $107 per square foot for a property 87% leased, the Subject is offered at a fraction of replacement cost, leaving room for Purchaser to invest in upgrading the property yet still offer competitive rent to capture tenants looking for high-quality, well-located yet affordable space. Attractive Returns: The going-in capitalization rate is 7.31% with legitimate potential to grow the income stream. Assumable debt is in place; our 10-year Argus discounted cash flow analysis projects a leveraged yield of 19.78%. Leasing Upside: The asset is an ideal candidate for freshening and repositioning. Average rent in place is 15-20% below market, so there is an opportunity to raise rents as renewals and new leasing take place. In addition, several tenants are on full service leases and not presently contributing any expense reimbursements. Positive Market Trends: Sacramento Metro is California s fourth largest MSA. The economic forecast is for continued growth in office workers over the next several years. Net absorption for Sacramento s office market during 2015 was 1.0 million square feet, reducing the vacancy rate by 200 bps. Strategic Location: Situated between Business 80 and (continued on next page) 7

8 investment highlights (continued) U.S. Highway 50 in Sacramento, the Property enjoys the advantage of nearby shopping and dining opportunities such as the 1,100,000 square foot Arden Fair Mall and the quadrant at the southeast corner of Howe Avenue and Arden Way where the Howe bout Arden Shopping Center and appurtenant retail to the west is being greatly expanded and redeveloped by its owner, SyWest Development. The expansion will include new shops, a relocated Nordstrom Rack store, and a new 14-screen movie theater. Transportation: The Property enjoys excellent access to both the regional freeway system and public transportation, with a nearby bus stop on Howe Avenue. The nearby Capital City Freeway provides quick access to both Highway 50 and Interstate 80. Recent Upgrades and Refurbishments: As of March 2016 current owner has initiated repairs and replacements throughout the property at an estimated cost of $145,000. These upgrades and refurbishments include: Repair drainage system along the base of the building Repair or replace asphalt, sidewalks, and curbs at selected locations R/R wooden landscape planter boxes R/R damaged siding Repaint exterior walls Replace damaged wood trellis Install seismic straps on water heater Install additional handicap-accessible parking stalls Modify ramps and install stairway handrail extensions Arden Fair Mall Howe bout Arden ARDEN WAY Howe bout Arden Expansion Area HOWE AVENUE SUBJECT HURLEY WAY 8 8

9 area overview SUBJECT Hurley Wy N MAP NOT TO SCALE 2020 Hurley Way is located at the western edge of the Howe Avenue/Fulton Avenue office submarket, adjacent to another submarket known as Point West. In the aggregate these two submarkets contain approximately 4.2 million square feet of office space. In addition to being an employment hub, Howe Avenue is a major retail corridor and Point West contains one of the region s largest shopping destinations, Arden Fair Mall. North of the Property at the southwest corner of Howe Avenue and Arden Way is one of Sacramento s best known neighborhood shopping centers, the playfully-named Howe bout Arden Center. Anchored by Nordstrom Rack, the owners of the center have acquired multiple parcels adjacent to the center and have embarked on a major expansion and renovation of the property. SyWest Development already owned the Century Theaters before acquiring Howe bout Arden, and they also own the former site of a Motel 6 just south of the center. Both properties are being demolished and an all-new theater complex will be constructed south of the current theaters. In addition, the developers announced relocation and expansion of Nordstrom Rack, and The Container Store a national retailer of storage and home organization merchandise opened its first Sacramento store in January

10 Property Overview 2020 Hurley Way

11 property summary ADDRESS 2020 Hurley Way, Sacramento, CA COUNTY The Property is located in Sacramento County just outside the Sacramento city limits. Accordingly it will not be subject to City of Sacramento transfer taxes at close of escrow. PARCEL # LAND AREA 2.57 acres YEAR BUILT 1976 NET RENTABLE AREA FLOORS CONSTRUCTION TYPE 60,133 square feet Two-story Wood-frame FOUNDATION First floor is poured concrete; the second floor is wood-frame. ROOF Membrane with coating (2003) ELEVATORS HVAC ELECTRICAL PARKING PROPERTY CONDITION / CAPITAL BUDGET One Individual units for each suite 277 volts 203 parking stalls, four of which are handicap spaces. (3.37/1,000 SF) A comprehensive Property Condition Assessment dated July 2015 will be made available as part of due diligence to qualified bidders. 11

12 Parcel lines are approximate and for illustrative purposes only. 12

13 parcel map N NOT TO SCALE -- ALL DIMENSIONS ARE APPROXIMATE. 13

14 Financial 2020 Hurley Way

15 financial summary The office property at 2020 Hurley Way in Sacramento is an exciting opportunity to create additional value in a well-located asset within easy walking distance of multiple dining and shopping opportunities and public transportation. The asset is 86.6% leased and producing annual net income of $469,377. Its offering price represents a going in capitalization rate of 7.31% and there are multiple opportunities to increase income by modernizing the property, nudging rents up to market, leasing available space, and capturing additional expense reimbursement as leases come up for renewal. Please refer to the exhibits on the following pages for additional details. Our discounted cash flow analysis, which includes $378,000 in capital improvements over 10 years, projects a cash return in excess of 12% and a leveraged yield of 19.78% with new assumable debt in place. 15

16 projected post-sale income & expense statement Price $6,425,000 Net Rentable Area 60,133 Price per Square Foot $ Potential Financing: Type: Assumption required In Place Interest Rate 5.15% Principal Amount as of February 2016 $4,500,000 Down Payment $1,925,000 Amortization (years) 30 Maturity date Feb-26 Estimated Monthly Payment $24,571 Estimated Annual Payment $294,854 Current Stabilized Occupancy 86.6% 95% Scheduled Gross Income $844,881 $975,405 plus sign income $1,200 $1,200 plus expense reimbursements $9,265 $9,265 Adjusted Scheduled Gross Income $855,346 $985,870 less 5% vacancy and collection allowance n/a ($49,293) Effective Gross Income $855,346 $936,576 less Operating Expenses ($385,969) ($410,516) Net Operating Income $469,377 $526,060 NOI per square foot $7.81 $8.75 Estimated Annual Debt Service ($294,854) ($294,854) Pre-Tax Cash Flow $174,523 $231,206 Initial Capitalization Rate 7.31% 8.19% Initial Cash-on-Cash Return 9.07% 12.01% Argus cash IRR % Argus leveraged IRR % 16

17 current rent roll Annual rents are for the 12 months commencing June 1, 2016 including scheduled rent increases SUITE TENANT LEASE TERM CURRENT BASE RENT RENTABLE SQ. FT. START END MONTHLY PER SQ. FT. ANNUAL LEASE TYPE (2) ANNUAL EST. CAM NEXT SCHEDULED INCREASE 105 Imko Enterprises 1,742 May-14 Apr-19 $2,352 $1.35 $28,395 Gross 2013 $129 Apr-17 $2,439 $ % 135 Dr. Golestan 1,156 Jan-10 Jan-17 $2,140 $1.85 $25,674 Gross 2010 $87 none % 150/180 Skyline Steel 3,271 Nov-12 Oct-18 $5,070 $1.55 $61,985 Gross 2010 $647 Nov-16 $5,234 $ % 175 Law Offices - Rouse 1,163 Nov-10 Nov-16 $1,163 $1.00 $13,956 FSG n/a n/a none % 185 Foster & Parker Insurance (5) 1,325 Feb-13 Mar-17 $1,821 $1.37 $22,655 Gross 2013 $59 Feb-16 $1,921 $ % 190 Dr. James McGinnis 1,469 Dec-81 Mar-18 $2,057 $1.40 $24,826 FSG n/a n/a Apr-17 $2,130 $ % 200 Law Offices - Cohen 1,684 Sep-13 Aug-18 $2,526 $1.50 $31,070 FSG n/a n/a Sep-16 $2,610 $ % 205 Volunteers in Victims Assis. (5) 1,741 Feb-11 Jan-17 $1,967 $1.13 $23,608 Gross 2008 $0 none % 210 Law Offices - Reynolds 1,032 Jun-99 Dec-18 $1,393 $1.35 $16,976 FSG n/a n/a Jan-17 $1,445 $ % 220 Investnet, Inc. (1) 1,173 Nov-10 m-t-m $600 $0.51 $7,200 FSG n/a n/a none % 222 Daniel Weiss 249 month-to-month $350 $1.41 $4,200 FSG n/a n/a none 0.4% 225 Indecare, Inc. (5) 1,438 Nov-11 Aug-17 $1,869 $1.30 $22,433 Gross 2013 $107 none % 230 Simplified Business Srvcs 854 Jan-08 Jun-17 $1,196 $1.40 $14,817 Gross 2014 $45 Jul-16 $1,238 $ % 110,245/255 Barbizon School of SF (4) 3,976 Jun-15 Oct-20 $4,771 $1.15 $57,254 Gross 2012 $5,022 Jun-17 $4,970 $ % 280 Advanced Micro-Endodontics 1,420 Sep-08 Feb-19 $2,485 $1.75 $30,033 Gross 2009 $7 Mar-17 $2,556 $ % 290 Le Vu Dental Corp. 1,669 Sep-12 Aug-17 $3,538 $2.12 $43,210 Gross 2013 $123 Sep-16 $3,622 $ % 295 Bernardo Marigmen 951 Mar-15 Apr-17 $1,141 $1.20 $13,694 Gross 2013 $93 none % 345 Burns and Abramson (3) 1,436 Jul-05 Jun-17 $2,154 $1.50 $25,848 Gross 2011 $0 none % 350 CLaS Information Srvcs. (3) 5,457 Jul-04 Jun-19 $7,094 $1.30 $85,129 Gross 2011 $0 none % , , 490A International Rescue Committee 9,195 May-16 May-21 $10,574 $1.15 $126,891 FSG n/a n/a none % EDCO Group 5,244 Nov-13 Mar-19 $6,817 $1.30 $83,642 FSG n/a n/a Nov-16 $7,079 $ % 485 Langstroth Chiropractic 2,926 May-08 Oct-18 $4,389 $1.50 $53,692 Gross 2011 $2,946 Nov-16 $4,535 $ % 490B Dr. Ferrera 1,505 Sep-13 Dec-16 $2,258 $1.50 $27,692 Gross 2014 $0 Oct-16 $2,333 $ % Subtotal leased 52,076 $69,725 $1.34 $844,881 $9, % 120 Vacant 1, $2,217 $1.35 $26,600 Gross % 145 Vacant (Avaunt) 2, $4,015 $1.35 $48,179 Gross % 265 Vacant 1, $1,574 $1.35 $18,889 Gross % 285 Vacant $1,013 $1.35 $12,150 Gross % 305/307 Vacant 1,525 $2,059 $1.35 $24,705 Gross 2.5% Subtotal vacant 8,057 $10,877 $130, % Total 60,133 $80,602 $975,405 $9, % (1) 12 months of occupancy and rent assumed. (2) Owner designates leases in which Tenant reimburses increases over a base year as Gross and leases where Tenant does not reimburse any operating expenses as FS Gross. (3) These tenants received a grossed up 2011 base year of $520,877; other 2011 tenants have a base year of $345,698. (4) Tenant s December rent is abated in 2016, 2017, and (5) Tenant s expiration date includes a 12-month speculative extension; a longer extension term is anticipated. BASE YEAR DATE NEW MO. RENT PER SQ. FT. PRO RATA 17

18 expense projection Occupancy %: 87% 95% 2015 ACTUAL PRO FORMA Ad Valorem Property Taxes 52,518 74,774 Direct Levies - 3,602 Gas & Electric/Satellite 117, ,444 Sewer, Water, Trash 26,649 26,649 Insurance 14,316 14,316 Management (% of EGI) 51,411 24,260 Repairs and Maintenance 58,137 56,974 Janitorial 43,506 62,671 HVAC 11,604 12,044 Landscaping / Parking 16,783 16,783 TOTAL OPERATING EXPENSES $392, ,516 $/SF/Yr $6.52 $6.83 In addition to the operating expenses above, asset pricing and our 10-year discounted cash flow analysis assume capital expenditures over 10 years will total $378,

19 major assumptions used in our argus discounted cash flow analysis ANALYSIS TERM AND STARTING DATE: Ten years commencing June 2016 INFLATION RATES: General: 2.5% Market rent: 2.5% Operating expenses: 2.5% Property taxes: 2.0% MARKET RENT / GROWTH: CAPITAL IMPROVEMENTS AND REPLACEMENTS BUDGET: OPERATING EXPENSES: EXPENSE REIMBURSEMENTS Current: Future: VACANCY ABSORPTION: $1.35 psf/month, serviced, with pass throughs over a base year. As improvements to the property are completed we anticipate rent will grow as follows: Year 2: $1.40; Year 3: $1.45; Year 4: $1.50; Year 5 and thereafter $1.60 with 2.5% annual growth. In July 2015 Ownership commissioned a Property Condition Assessment report to identify and estimate the cost of repairs or replacements needed, either currently or projected. The consultants report, which will be made available in due diligence, estimates repair and replacements over the next 10 years will total approximately $378,000. Our 10-year discounted cash flow analysis, and the hypothetical long-term yields cited in this offering, include budgeted amounts taken from the PCA report. In some instances we adjusted the timing of certain expenditures to occur sooner than recommended by the cousultant. As the property is improved and upgraded, prospective starting rents gradually increase to reflect these improvements. See market rent detail above. Based on Owner's 2015 operating results with property taxes adjusted post-sale. Mixed; most leases are serviced with pass throughs over a base year, but six tenants pay no reimbursements. Landlord uses an atypical nomenclature in which leases with expense pass-thrus over a base year are called "gross", while leases without any reimbursements are called "full service gross". Assumes future leases will be serviced with pass-throughs over a base year, typical in the submarket. Assumes the vacant space is leased at the rate of one new lease per quarter beginning on the analysis start date. All leases commence at market rent with five months of free rent, 2.5% annual increases, a TI allowance of $15 psf, and leasing commissions of 7.5%. ROLLOVER ASSUMPTIONS Renewal probability: 75% Months dark: 4 Starting rent: 100% of fair market rent when the lease commences Escalations: Assumes rent is increased annually by 3.0% T.I. Allowance: $15 per square foot on new leases; $0 on renewals. Concessions: None Term length: 5 years. Leasing commissions: 6% of base rent on the first five years of term; none on renewals. MINIMUM STABILIZED VACANCY: Natural DEBT-IN-PLACE: An assumable loan of $4,500,000 was recorded in February 2016, bearing an interest rate of 5.15%, with a 30-year amortization schedule. It matures in February The assumption fee is 0.5% of the outstanding balance. This loan must be assumed by Purchaser. REVERSION: Terminal capitalization rate: 7.75% Present value discounting method: Annually, midpoint on cash flow, endpoint on resale. Costs of Sale: 3.5% of reversion price when the asset is sold. 19

20 property summary TIMING & INFLATION Reporting Period: Inflation Month: June 1, 2016 to May 31, 2026; 10 years Analysis Start General Inflation Rate: 2.50% PROPERTY SIZE & OCCUPANCY Property Size: Alternate Size: 60,133 Square Feet 1 Square Foot Number of rent roll tenants: 23 Total Occupied Area: 53,687 Square Feet, 89.28%, during first month of analysis SPACE ABSORPTION Vacancy: 8,057 Square Feet, leasing from 6/16 to 6/17 1 lease per quarter, 1,611 SqFt per lease DEBT FINANCING Number of Notes: 1 Beginning Principal Balance: $4,478,830 Average Year 1 Interest Rate: 5.15% PROPERTY PURCHASE PRICE: $6,425,000 RESALE: Resale Method: Capitalize Net Operating Income Reversion Cap Rate: 7.75% Cap Year: Year 10 Commission/Closing Cost: $388,535 Net Cash Flow from Sale: $10,712,471 PRESENT VALUE DISCOUNTING Discount Method: Annually (Midpoint on Cash Flow/Endpoint on Resale) Unleveraged Annual IRR: 12.12% at $6,425,000 Leveraged Annual IRR: 19.78% at $6,425,000 20

21 10-year cash flow Schedule Of Prospective Cash Flow In Inflated Dollars for the Fiscal Year Beginning 6/1/2016 YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10 FOR THE YEARS ENDING MAY-2017 MAY-2018 MAY-2019 MAY-2020 MAY-2021 MAY-2022 MAY-2023 MAY-2024 MAY-2025 MAY-2026 Potential Gross Revenue Base Rental Revenue $978,716 $1,002,543 $1,014,452 $1,048,075 $1,084,575 $1,184,791 $1,234,845 $1,274,049 $1,314,673 $1,352,477 Absorption & Turnover Vacancy (78,299) (11,858) (26,412) (8,595) (6,565) (38,550) (18,360) (27,923) (13,053) (7,442) Base Rent Abatements (39,157) (15,631) Scheduled Base Rental Revenue 861, , ,040 1,039,480 1,078,010 1,146,241 1,216,485 1,246,126 1,301,620 1,345,035 Expense Reimbursement Revenue 10,423 16,712 20,171 24,207 29,176 29,342 26,190 31,052 26,423 36,794 Sign revenue 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 Total Potential Gross Revenue 872, ,966 1,009,411 1,064,887 1,108,386 1,176,783 1,243,875 1,278,378 1,329,243 1,383,029 Effective Gross Revenue 872, ,966 1,009,411 1,064,887 1,108,386 1,176,783 1,243,875 1,278,378 1,329,243 1,383,029 Operating Expenses Ad valorem property taxes 69,983 71,382 72,810 74,266 75,752 77,267 78,812 80,388 81,996 83,636 Direct levies 3,602 3,602 3,602 3,602 3,602 3,602 3,602 3,602 3,602 3,602 Gas & electricity 115, , , , , , , , , ,404 Sewer, water, trash 26,649 27,315 27,998 28,698 29,416 30,151 30,905 31,677 32,469 33,281 Insurance 14,316 14,674 15,041 15,417 15,802 16,197 16,602 17,017 17,443 17,879 Management 26,186 29,789 30,282 31,947 33,252 35,303 37,316 38,351 39,877 41,491 Repairs & maintenance 56,318 59,325 60,494 62,418 64,031 64,946 67,025 68,510 70,552 72,445 Janitorial 61,388 66,048 67,085 69,567 71,409 71,854 74,540 76,031 78,575 80,793 HVAC 11,958 12,466 12,737 13,109 13,444 13,690 14,092 14,419 14,823 15,210 Grounds/parking lot 16,783 17,203 17,633 18,073 18,525 18,988 19,463 19,950 20,448 20,960 Total Operating Expenses 402, , , , , , , , , ,701 Net Operating Income 470, , , , , , , , , ,328 Debt Service Interest Payments 229, , , , , , , , , ,577 Principal Payments 65,732 69,198 72,847 76,688 80,732 84,990 89,471 94,189 99,156 68,992 Total Debt Service 294, , , , , , , , , ,569 Leasing & Capital Costs Tenant Improvements 123,456 58,726 61,372 29,072 16,458 91,027 45,478 52,609 56,852 18,621 Leasing Commissions 47,366 22,499 22,700 10,836 6,286 34,737 17,286 20,157 21,557 7,127 CapEx 143, ,000 24,000 56,000 30,500 15,000 Loan assumption fee 0.5% 22,500 Total Leasing & Capital Costs 336,747 81, ,072 63,908 78, ,264 62,764 87,766 78,409 25,748 Cash Flow After Debt Service ($161,562) $189,747 $86,667 $256,966 $273,968 $257,599 $402,500 $401,687 $447,069 $638,011 But Before Taxes ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= 21

22 individual loan & debt service summary: in-place assumable YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10 FOR THE YEARS ENDING MAY-2017 MAY-2018 MAY-2019 MAY-2020 MAY-2021 MAY-2022 MAY-2023 MAY-2024 MAY-2025 MAY-2026 Minimum Debt Service Interest Payments $229,123 $225,656 $222,007 $218,166 $214,122 $209,865 $205,383 $200,665 $195,698 $127,577 Principal Payments 65,732 69,198 72,847 76,688 80,732 84,990 89,471 94,189 99,156 68,992 Total Minimum Debt Service 294, , , , , , , , , ,569 Reductions & Retirement Principal Balloon or Call 3,676,833 Total Reductions & Retirement 3,676,833 Total Cash Flow Paid To Lender $294,855 $294,854 $294,854 $294,854 $294,854 $294,855 $294,854 $294,854 $294,854 $3,873,402 ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= Principal Balance Summary Beginning Principal Balance $4,478,831 $4,413,098 $4,343,900 $4,271,052 $4,194,364 $4,113,632 $4,028,643 $3,939,171 $3,844,982 $3,745,825 Periodic Principal Reductions (65,732) (69,198) (72,847) (76,688) (80,732) (84,990) (89,471) (94,189) (99,156) (68,992) Principal Balloon Payments (3,676,833) Ending Principal Balance $4,413,099 $4,343,900 $4,271,053 $4,194,364 $4,113,632 $4,028,642 $3,939,172 $3,844,982 $3,745,826 ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= Interest Rates Interest Rate on Principal 5.15% 5.15% 5.15% 5.15% 5.15% 5.15% 5.15% 5.15% 5.15% 3.43% Cash Flow Coverage Ratios Cash to Total Interest Charged % % % % % % % % % % Cash to Minimum Debt Service % % % % % % % % % % Loan To Value Ratios Loan to Purchase Price 69.71% 68.69% 67.61% 66.48% 65.28% 64.03% 62.70% 61.31% 59.84% 58.30% Loan to Capitalized Value 73.85% 60.45% 58.59% 53.76% 50.20% 44.98% 41.08% 38.92% 36.33% 33.74% Loan to Lowest Present Value 72.75% 71.68% 70.56% 69.38% 68.13% 66.82% 65.44% 63.99% 62.46% 60.85% Loan to Highest Present Value 65.63% 64.66% 63.65% 62.58% 61.46% 60.28% 59.03% 57.72% 56.34% 54.89% Lenders Yields (IRR) Base Yield to Maturity 5.15% 22

23 prospective property resale YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10 FOR THE YEARS ENDING MAY-2017 MAY-2018 MAY-2019 MAY-2020 MAY-2021 MAY-2022 MAY-2023 MAY-2024 MAY-2025 MAY-2026 Resale Amount Gross Proceeds from Sale $11,101,006 Commissions & Adjustments (388,535) Net Proceeds From Sale $10,712,471 ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= Unleveraged Annual IRR 12.12% Leveraged Annual IRR 19.78% 23

24 Selected Tenant Profiles 2020 Hurley Way

25 selected tenant profiles IMKO Enterprises 1,742 square feet Founded in 1972 and based in St. Joseph, MO, IMKO Workforce Solutions is a nationwide employment agency with a branch office at 2020 Hurley Way. Their services range from conducting background checks to arranging temporary employment. IMKO has received the Workers Compensation Risk Certification for performing at the highest levels in the area of safety and risk management. Skyline Steel 3,271 square feet Founded in 1972 Skyline Steel is a premier steel foundation supplier serving the United States, Canada, Mexico, the Caribbean, Central America, and Colombia. It is a wholly-owned subsidiary of Nucor Corporation, the largest steel producer in the United States. Volunteers in Victim Assistance (VIVA) 1,741 square feet Volunteers in Victim Assistance provides counseling to victims of violent crime and trauma. The VIVA headquarters is located at 2020 Hurley Way and from this location they serve Sacramento, El Dorado, Nevada, Placer, and Yolo counties. Indecare 1,438 square feet Indecare is an in-home care and living assistance company that provides assistance to seniors who continue to live at home but are no longer fully independent. Their services include companionship, meal planning and preparation, incidental transportation, running errands, light housekeeping, medication reminders, assistance with bathing and grooming, bill paying assistance, and senior referral services. The Barbizon School 3,976 square feet The Barbizon School is a well-known talent agency that focuses on teaching modeling and acting skills to children and teens. Founded in 1939, they offer classes that include runway modeling and theatrical improvisation. (continued on next page) 25

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27 selected tenant profiles (continued) CLAS Information Services 5,457 square feet CLAS Information Services provides public records information and other related resources to businesses across the country. CLAS also produces software for use in a corporate business setting. Their headquarters is located at 2020 Hurley Way. International Rescue Committee 9,195 square feet The International Rescue Committee is a nonprofit humanitarian organization that comes to the aid of people around the world whose lives have been destroyed by armed conflict or natural disasters. The IRC is highly regarded, receiving four stars from Charity Navigator, and an A+ from Charity Watch. With thousands of employees and volunteers, the IRC carries out its mission in 40 countries worldwide. EDCO Group, aka ABI Document Support Services 5,244 square feet The EDCO Group is also known as ABI Document Support Services, a national firm specializing in the storage and retrieval of business and medical records. In a typical month the Company retrieves more than 40,000 documents for nearly 4,500 distinct clients. The company was founded 30 years ago and has been a leader and innovator in online document retrieval. Langstroth Chiropractic 2,926 square feet Langstroth Chiropractic, headed by Dr. Kit Langstroth, offers a new concept in therapy that unites a wide range of holistic service under one roof. Their facility includes a Pilates studio and on-site X-ray services. The Pilates studio has been ranked #2 on KCRA s A list for three years in a row. 27

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30 Area Overview & Market Trends 2020 Hurley Way

31 Arden Fair Mall Point West Office Submarket Howe bout Arden Expansion Area ARDEN WAY Cal Expo Thai Fusion SUBJECT HOWE AVENUE HURLEY WAY 31

32 area overview 2020 Hurley Way is located at the western edge of the Howe Avenue/Fulton Avenue office submarket, adjacent to another submarket known as Point West. In the aggregate these two submarkets contain approximately 4.2 million of office space. In addition to being an employment hub Howe Avenue is a major retail corridor and Point West contains one of the region s largest shopping destinations, Arden Fair Mall. arden fair mall Arden Fair Mall is located one mile southwest of the Property and serves as a major attraction for tenants because of the abundance of high quality and popular restaurant and retail opportunities. The mall is a two-level regional shopping destination with more than 165 tenants and 1,100,000 square feet of retail space. Major anchors include JCPenney, Macy s, Nordstrom and Sears. Located just minutes from Downtown and the State Capitol, Arden Fair Mall serves a trade area that covers a 25-mile radius and includes more than 1.15 million residents and 429,000 households. cal expo The California Exposition and State Fair (Cal Expo) is an independent state agency that has an estimated economic impact of more than $250 million on the region. In addition to the annual State Fair, Cal Expo hosts a number of other community, trade and business events including the annual State Fair Gala (supporting scholarships), Sacramento County Fair, International Sportsman Expo, Western States Horse Expo and a number of other RV, auto, and special collectible trade shows. The one-mile dirt racetrack at Cal Expo hosts live thoroughbred racing during the annual State Fair and live harness racing (September through May), in addition to special events like the Sacramento Mile automobile race. Sacramento s new professional soccer team, Sac Republic FC, recently selected Cal Expo as its home turf and has constructed a new 8,000-person stadium on the site. (continued on next page) 32

33 area overview (continued) howe bout arden North of the Property at the southwest corner of Howe Avenue and Arden Way is one of Sacramento s best known neighborhood shopping centers, the playfully-named Howe bout Arden Center. Anchored by Nordstrom Rack, the owners of the Center have acquired multiple adjacent parcels and begun a major expansion and renovation of the Property. SyWest Development already owned the Century Theaters property before acquiring Howe bout Arden and they also own the former site of a Motel 6 just south of the Center. An all-new theater complex will be constructed south of the current theater site. In addition, the developers announced the relocation and expansion of Nordstrom Rack and The Container Store a national retailer of storage and home organization merchandise opened its first Sacramento store in January (continued on next page) Arden Fair Mall Howe bout Arden Howe bout Arden Expansion Area HOWE AVENUE SUBJECT HURLEY WAY 33

34 area overview (continued) economic performance Sacramento's economic recovery began picking up steam in 2014 as increases in housing starts and consumer spending more than offset lingering softness in other business sectors. Increasing residential construction and the State s rapidly improving fiscal condition are reflected in seasonally adjusted payroll growth. Sacramento s job creation statistics have been positive for 45 consecutive months, and the region s 5.4% unemployment rate is lower than the State s 5.6%. Sacramento s job creation statistics have been positive for 45 consecutive months, and the region s 5.4% unemployment rate is now lower than the State s 5.6%. raises, potentially helping retailers and other consumerdependent industries. Thanks to the Affordable Care Act Sacramento payrolls are getting a boost from creation of California s health insurance exchange which was launched in October In 2014 the California Health Benefit Exchange (CHBEX) moved into a 123,000 square foot building in Point West and invested substantial sums in infrastructure and technology needed to adapt the facility to its needs. Signs of recovery in residential real estate are evident. The decline in inventory of existing single-family homes for sale has been accompanied by an increase in the median price according to the California Association of Realtors. New home construction is also on the rebound as the issuance of residential permits rises. Following several years of work to strengthen the levies surrounding the North Natomas neighborhood, The U.S. Army Corps of Engineers and City of Sacramento recently announced that a previously enforced building moratorium has been lifted. Pent-up demand for new housing in proximity to Downtown is expected to result in a marked increase in residential construction in that neighborhood. government A strengthening statewide recovery and increasing tax revenues are bolstering the region s primary economic driver government employment. The current budget continues to reverse the cuts to education and social welfare programs that were put in place during the recession. Increased state spending bolsters the Metro area's already sizable government workforce which will likely increase demand for office space. Many in the state workforce will be receiving pay commercial real estate The improving construction outlook extends to nonresidential developments as well. Construction of a new downtown Entertainment and Sports Complex (ESC) is well under way, with completion scheduled in time for the Sacramento Kings 2016 NBA season opener. This state-of-the-art project also includes 475,000 square feet of office and 350,000 square feet of retail space. The new ESC is having a transformative impact on Sacramento s downtown especially at the west end. Several notable transactions have already recorded and many others are rumored. Vanir Development received City approval for a new 26-story high-rise office building across the street to the north, and a development group that includes the Kings ownership has obtained approval for a new project on the northern half of the arena site that includes a 250-room Kimpton hotel and 550 residential units. Immediately south of the arena a group of investors purchased the 14-story, 450,000 square foot office property at 555 Capitol Mall with plans to renovate and modernize the building, including the likely addition of new ground floor retail space. 34

35 The new downtown Entertainment and Sports Complex is scheduled to open October (Rendering courtesy of SacramentoESC.com.) 35

36 market trends sacramento The greater Sacramento Metro market contains 52 million square feet of office space, of which 10.6 million square feet are located in the CBD while the balance is distributed among 16 suburban markets. Following two straight years of positive net absorption totaling 1.5 million square feet, the market s overall vacancy rate has fallen to 16.3% and the trend is encouraging. Average rents have stabilized and concessions are shrinking in most submarkets. absorption The Sacramento office market recorded 1,000,000 square feet of net absorption in All but 130,000 square feet of this occurred in Sacramento s suburban submarkets which offer low-cost alternatives to the CBD and which generally also feature free parking. The Howe/Fulton and Point West submarkets experienced more than 126,000 square feet of net absorption in 2015, and modest positive absorption in 1Q conclusion As Sacramento s office market continues its recovery there are signs that a better economy, coupled with California s dramaticallyimproved state budget, is generating leasing interest from both public and private tenants. Local observers are taking note of a new optimism about the Sacramento region and believe regional conditions will continue to improve in 2016 and beyond. Longer term, the Metro area is likely to benefit from above-average population growth as a relatively low cost of living and high quality of life continue to attract residents and businesses from other parts of the State. 36

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38 transaction contacts Randy Getz Executive Vice President Lic Matt Post Associate Lic CBRE, Inc. 500 Capitol Mall Suite 2400 Sacramento, CA cbre.com/invsacramentocommercial CAPITAL MARKETS INVESTMENT PROPERTIES