Ruffin Road. capital markets investment properties-socal

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1 3710 Ruffin Road capital markets investment properties-socal

2 CONTACTS: Investment Advisors: Investment Properties-Socal Local Market Expert: MATT POURCHO Lic GARY STACHE Lic ANTHONY DELORENZO Lic DOUG MACK Lic MARK SHAFFER (L.A.) Lic MATT CARLSON Lic CBRE, Inc. The information containing in this document has been obtained for 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 f 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. Photos herein are the property of their respective owners and use of these images without the express written consent of the owner is prohibit All other marks displayed on this document are the Property of their respective owners.

3 TABLE OF CONTENTS EXECUTIVE OVERVIEW Investment Summary Investment Highlights PROPERTY OVERVIEW Parcel Map Site Plan Floor Plans AREA OVERVIEW City Overview MARKET OVERVIEW TENANT PROFILE FINANCIALS Lease vs Own Scenario Replacement Costs or 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 ed. 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.

4 EXECUTIVE OVERVIEW CBRE is pleased to present the opportunity to purchase 3710 Ruffin Road, a unique two-story Class A modern creative office building located in Highland Skypark. The building is approximately 20,060 SF, zoned for both medical and office uses and is located in the heart of San Diego s most sought after submarket Kearny Mesa. The current owner has invested significant capital into the building since it was built in 2007 as it has been the corporate headquarters to Richard Brady and Associates. The current owner/seller is willing to sell the property 100% vacant or potentially 50% leased on a sale/leaseback scenario where the current owner occupies the top floor (approx. 10,030 RSF) at a negotiable rent and lease term. 1 CBRE Investment Properties-Socal

5 INVESTMENT HIGHLIGHTS RARE OWNER-USER OPPORTUNITY IN IDEAL KEARNY MESA LOCATION HIGHLAND SKYPARK Adjacent to Aero Drive which is a main East/ Potential Sale/Leaseback - Owner may West thoroughfare in the submarket. consider leasing back the top floor for a Kearny mesa diversification of uses makes negotiable rent and lease term. the submarket less dependent on specific Owner will also vacate the premises for a full employment sectors. The submarket s broad building owner/user. tenant base includes industries such as healthcare, defense contractors, education, Rare opportunity to own 1 of only 5 buildings construction, government, and consumer built in the Highland Skypark, one of the products & services, to name a few. most well located Class A office /medical developments in Central San Diego. Ideal demographics base with access to executive and employee labor pool. Within Creative office Class A improvements. 5 miles of 261,948 people with an average Excellent ingress/egress. household income of $76,206. Large monument signage on Ruffin Rd. Exceptional amenity base. Within 3 miles of Ample parking (4/1000). 22 grocery stores, 25 banks, 312 restaurants, Fitness Center and showers/lockers. 10 health clubs and 10 hotels. Priced at $6,318,900 ($315 PSF), significantly below the estimated replacement cost of $7,402,000 ($367 PSF) EXCELLENT MARKET FUNDAMENTALS: KEARNY MESA OFFICE MARKET CLASS A & B Significant Rent Growth: 29.5% rent growth over the past 2 years (since Q3 2013). Overall, Kearny Mesa had the second highest leasing activity in Central San Diego (just 2,000 SF behind UTC) in Q Leasing activity was also the third highest in the San Diego submarket behind Downtown and UTC. INVESTMENT SUMMARY Offering Price $6,318,900 Price PSF $315 Occupancy Total Rentable Area Total Land Area Website 0% to 50% (flexible) +/-20,060 RSF +/-4.70 Acres Ruffin Road, San Diego, California 2

6 AERO DRIVE ESCONDIDO FREEWAY PACIFIC OCEAN LA JOLLA UTC CLAIREMONT MIRAMAR AIRFORCE BASE JACOB DEKEMA FREEWAY Kyocera Int. Four Points by Sheraton CABRILLO FREEWAY Jack in the Box Distribution AERO DRIVE MONTGOMERY FIELD AIRPORT Solar Turbines Cubi Corporation BALBOA AVE. Sierra Mesa Library Sharp Healthcare SD Chargers Training Facility SD Police Dept Ruffin Road RUFFIN RD Self Storage PROPERTY OVERVIEW BUSINESS POINTS WITHIN BUSINESS POINTS WITHIN BUSINESS POINTS WITHIN A 1 MILE RADIUS: A 2 MILE RADIUS: A 3 MILE RADIUS: YMCA Extended Stay America University of Phoenix 29 Restaurants 4 Hotels & Motels 21 Fitness & Recreational Sports Centers 7 Grocery Stores 221 Restaurants 11 Hotels & Motels 81 Fitness & Recreational Sports Centers 52 Grocery Stores 453 Restaurants 27 Hotels & Motels 194 Fitness & Recreational Sports Centers 116Grocery Stores RUFFIN RD Holiday Inn 14 Banks 98 Banks 201 Banks 3 CBRE Investment Properties-Socal

7 PROPERTY HIGHLIGHTS ADDRESS: 3710 Ruffin Road, San Diego, CA APN: GROSS BUILDING SIZE: +/- 20,060 RSF LAND SIZE: YEAR BUILT: 2007 HVAC: 100% STORIES: Two (2) Condo interest in +/ Acres (204,732 SF) PARKING: +/- 80 Spaces (4/1,000) ROOF: Flat CONSTRUCTION TYPE: Masonry ELEVATOR: One (1) SPRINKLERS: 100% ZONING: IL-2-1, Industrial Light UTILITIES: Water Sewer Electricity Natural Gas Local Phone City of San Diego City of San Diego San Diego Gas & Electric San Diego Gas & Electric AT&T DAILY TRAFFIC COUNTS INTERSECTION AVERAGE DAILY TRAFFIC Ruffin Road 19,798 Aero Drive 25,380 Interstate ,676 DISTANCE TO SAN DIEGO Palm Springs 75 miles Los Angeles 106 miles Las Vegas 253 miles San Francisco 449 miles Sacramento 463 miles 3710 Ruffin Road, San Diego, California 4

8 DRIVE WAY TO RUFFIN ROAD Neur A odyn amic s NAP B cswe en NAP ey Dr M 3710 Ruffin Road C SD Office Interiors NAP D YMCA NAP 5 CBRE Investment Properties-Socal

9 FIRST FLOOR Fitness Center SECOND FLOOR 3710 Ruffin Road, San Diego, California 6

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11 St 805 Clairemont Mesa Blvd 805 Hickman Field Dr Copley Dr Mt Soledad Fwy Convoy TerraceCopley Park Pl Convoy Ct Cabrillo Fwy Kearny Villa RdKearny Villa Rd Escandido Fwy 15 NORTH Mt Soledad Fwy Limerick Ave Autozone Clairemont Mt Abernathy Ave Chandler Ave Genesee Plaza Shopping Center Balboa Ave Autozone Charger Blvd Balboa Ave Convoy Ave Mercury St Cabrillo Fwy Kearny Mesa Clairemont Mesa Blvd Balboa Ave 15 Clairemont Mesa Blvd Tierrasanta Blvd Mt Alifan Dr Petit St Ashford St Convoy St Mt Acadia Blvd Montgomery Field 805 Kearny Villa Rd Aero Dr Aero Dr ast Clairmont Athletic Area Boyd Ave Marlesta Dr Auburndale Beagle St San Diego Mesa College Linda Vista Rd Sandrock Rd Gramercy Dr Stonecrest Plaza 3710 Ruffin Road, San Diego, California 15 8

12 MARKET OVERVIEW KEARNY MESA OFFICE MARKET Significant Storylines 1. Kearny Mesa led Class A year over year rental rate gains, increasing $.66 to $3.11. This is primarily due to Cricket Wireless/ AT&T vacating 200,000 sq. ft. of some of the highest quality space in the market. This increase also contributed to Kearny Mesa leading all San Diego submarkets in post-recession Class A rent growth, with a 51.5% gain since the low point in Q Kearny Mesa surpassed peak of Class A rates by 6% (Q2 2008). 2. Although Kearny Mesa experienced negative net absorption YTD in 2015, its direct vacancy rate through Q for combined Class A & B product is comparatively low at 12.5%. This is a significant decline from the peak of 19.7% in Q and the same as Q This negative net absorption is mainly from the Terraces at Copley 140,541 sq. ft. of negative absorption. 3. The Class A market vacancy rate of 17.3% is significantly impacted by the vacant 140,541 sq. ft. portion of Terraces at Copley. This YTD negative net absorption leads all of San Diego County. Kearny Mesa had three quality free-standing vacant buildings between 50, ,000 sq. ft. available moving into this quarter and two of them experienced major leases with SDG&E and Cox. All of these buildings are pushing rents beyond current market rent thresholds. 4. The Class B market improved strongly in 2Q 2015, decreasing from 12.2% to 9.9% for vacancy and 14.4% to 11.9% for availability. This also compares favorably to the overall San Diego County numbers of 13.1% / 17.9% respectively. Class B is now back to 8.5% below the peak rates in 4Q Direct overall vacancy is 13.5% vs. Central San Diego at 11%. 9 CBRE Investment Properties-Socal

13 SUPERIOR MARKET DYNAMICS Kearny Mesa s superior market dynamics make it a preferred location over competing submarkets to users and investors alike. Kearny Mesa s centrality, freeway access, numerous points of ingress and egress, lack of congestion, surrounding strong and diverse labor pool, and host of retail conveniences have been and continue to be the cornerstones of its value and success. Users of business park properties understand the bottom line value of these amenities to their customers, in attracting and retaining quality employees, and logistically with their operations. Investors realize that these attributes allow Kearny Mesa to compete advantageously with other business park locations. Investors also value Kearny Mesa s diversification of uses, which make this marketplace well positioned to benefit from job growth, while also being less dependent on specific employment sectors. Healthcare, education, defense, construction, government and consumer products/services industries are all mainstays in Kearny Mesa. LAND VALUES Land for business park development in Kearny Mesa is a quite valuable and limited commodity. Until 2011, no significant land transactions had occurred since That transaction was Kaiser Permanente s commitment to buy approximately 20 acres from the County, at nearly $50/SF for their planned 450-bed hospital, construction of which is now proceeding quickly. In 2014, another significant Kearny Mesa land sale finally took place consisting of an approximately 12- acre property (mostly excess land with a building leased back by Frito Lay) in San Diego Spectrum, which sold for approximately $41/SF. Given these sales, presumed market values of approximately $40-$50/ SF (with standard FARs), make the economic feasibility of building speculative industrial product, or even high-end R&D/ Corporate HQ space, difficult to justify. Long-term uses of vacant business park land and potential redevelopment sites are only now feasible for owner/users, potential office development, buildto-suits and other special uses such as Kaiser s hospital use and residential redevelopment. This long-term market direction will continue to result in both a higher end, office oriented product and a shrinking traditional industrial base in Kearny Mesa s future. PLANNING FOR THE FUTURE With job growth predicted to continue and thereby increased demand for space as well, investors are increasingly looking for redevelopment opportunities or the repositioning of aesthetically unappealing or poorly functioning buildings. Whereas the City of San Diego and the Kearny Mesa Planning Group are generally receptive to development/redevelopment, and even potentially increasing the area s FAR, there are challenges to be aware of, such as traffic impacts, the Prime Industrial Land area, and the Airport Overlay Maps. From a user s perspective, transacting sooner rather than later may be wise, because the current supply and demand trends are increasingly favoring landlords and sellers. CONCLUSION Kearny Mesa s strong underlying dynamics continue to make it the most stable environment in San Diego County for real estate investors. As predicted job growth continues, 2015 should continue to see declining vacancy levels, increasing effective rental rates, and continued increases in building values. If you are an occupant/owner or investor of Kearny Mesa property, you have chosen a wise location with a promising future 3710 Ruffin Road, San Diego, California 10

14 TENANT PROFILE 11 CBRE Investment Properties-Socal

15 NORMAL HEIGHTS PACIFIC OCEAN UNIVERSITY HEIGHTS DOWNTOWN SAN DIEGO CORONADO SAN DIEGO BAY Westfield Mission Valley SAN DIEGO AIRPORT Fashion Valley Mall MISSION VALLEY CLAIREMONT MESA Seaworld San Diego Ronald McDonald House PACIFIC OCEAN MISSION BAY Kearney Senior High School Ikea Qualcomm Stadium SIERRA MESA Fry s Electronics Stone Crest Plaza: Walmart Vons Dollar Tree University of Phoenix San Diego RUFFIN ROAD 3710 Ruffin Road AERO DRIVE MONTGOMERY FIELD AIRPORT Sharp Healthcare AERO DRIVE RUFFIN ROAD

16 RICHARD BRADY & ASSOCIATES Richard Brady & Associates (BRADY) was founded in 1999 as a professional services firm specializing in the design and construction management of water and wastewater facilities. In 2005, Richard Brady, PE, founder and Board-Certified Environmental Engineer, decided to expand his service offerings to include a broader range of environmental solutions. While building on the company s engineering core. Incumbent in all of BRADY operations the focus has been on sustainable development, including energy and resource conservation, LEED certification and sustainable design, and expedited closure of contaminated sites. Headquarters: San Diego, CA 13 CBRE Investment Properties-Socal

17 REPLACEMENT COST Land Size (Assumed to be 35% of 204,732 SF) Building Size 71,994 Square Feet 20,060 Square Feet HARD COSTS Land Acquisition $30.00 $2,159,834 Hard $ $2,206,600 Tenant $70.00 $1,404,200 TOTAL HARD COSTS $5,770,634 78% SOFT COSTS A & 2.0% $115,413 Insurance $0.37 PSF 7,422 Property Taxes 1.03% Hard Costs 59,438 Development Fees $3.00 PSF of Bldg. Area 60,180 Legal 1% Hard Costs 57,706 Developer s Profit 8% Hard Costs 461,651 Loan Fee 1% Hard Costs 57,706 Contingency 2% Hard Costs 115,413 Interest on Land Carry 3% Land Cost 64,795 Interest on Construction 5% Hard Costs 288,532 Interest on Lease Up 3% Hard Costs 173,119 Leasing Commission 8.46 PSF 169,708 TOTAL SOFT COSTS $1,631,082 22% Total Development Costs $7,401, % Cost Per Square Foot $ Economic Rent Calculation Replacement Costs $ Required Return 10.0% $36.90 Operating Expenses $9.00 Less Vacancy/Credit 5% $2.41 Economic Rent Required, PSF per year (FSG) $48.31 Economic Rent Required, PSF per month (FSG) $ Ruffin Road, San Diego, California 14

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19 FINANCIALS CBRE BUSINESS LENDING SALE OPPORTUNITY 20,060 SF PURCHASE PRICE: $6,318, Ruffin Road San Diego, CA $315/SF Purchase VS $2.15/SF/Month Gross Lease + E BENEFITS OF OWNERSHIP LEASE vs OWN SCENARIO FAVORABLE TAX DEDUCTIONS TO IMPROVE THE BOTTOM LINE *Mortgage Loan Interest *Annual depreciation *Cost of building improvements ACQUIRING AN ASSET THAT CREATES VALUE (Wealth Builder) *Potential source of rental income *Equity Build-up/Appreciation in asset value over time *Diversification of business profits POTENTIAL SOURCE OF PASSIVE INCOME *Income stream from leasing a portion of the property BENEFITS OF OWNING PROPERTY *Space can be modified to accommodate changes in the business All figures are provided for informational purposes only. Consult with your tax and financial advisors regarding the tax benefits of property ownership and deductibility of mortgage loan interest. OWN Jim Hatch Vice President jim.hatch@cbre.com Purchase Assumptions Lease Assumptions Purchase Price 6,318,900 Size (Square Feet) 10,231 Improvements $0 NNN Lease rate per sq ft/mo $1.62 Closing Costs $110,972 Monthly Lease Payment $16,574 Total Project Cost $ 6,429,872 Start-Up Costs Start-Up Costs Prepaid Rent $16,574 10% Down Payment $631,890 Security Deposit $16,574 Total Start-Up Costs $0 Improvements $0 Total Start-Up Costs $33,148 Monthly Costs Per Sq. ft. Mortgage Payment $1.74 $34,934 Monthly Costs Per Sq. ft. Operating Expenses $0.53 $10,615 Lease Payment $1.62 $16,574 Property Taxes $0.00 $0 Operating Expenses $0.53 $5,414 Insurance $0.00 $0 Property Taxes $0.00 $0 Maintenance $0.00 $0 Insurance $0.00 $0 Total Monthly Costs $45,549 Total Monthly Costs $21,988 Monthly Ownership Benefits (Estimated) Monthly Lease Benefits (Estimated) Tax Benefits Tax Benefits Depreciation Benefit $4,213 Depreciation Benefit $0 Expense Deduction $4,140 Lease Deduction $6,464 Interest Deduction (10 yr Avg.) $7,465 Expense Deduction $2,111 Other Benefits Interest Deduction n/a Rental Income $21,900 Other Benefits Opportunity Cost of Invested Equity $221 Rental Income $0 Investment Return on Excess Cash Flow ($1,885) Avg. Appreciation n/a Avg. Appreciation 1.5% $7,899 Total Lease Benefits $8,575 Total Ownership Benefits $43,952 Total Effective Monthly Cost: $1,597 Total Effective Monthly Cost: $13,413 Ownership Analysis Summary Annual Effective Cost Difference $104,065 Average Annual Principal Pay down $182,456 Annual Wealth Creation $286, Year Wealth Creation $2,865,214 LEASE Depreciation Tax Benefit = Purchase Price X 80% + Improvements / 39 years / 12months X 39% Tax Rate Estimated Monthly Appreciation = Purchase Price and Improvements x1.5% Appreciation Rate/12 months Financing: SBA Loan, 90% LTV financed over 23 years at 4.58% blended interest rate Equity and Cash Flow returns based on 8% annual investment rate 3710 Ruffin Road, San Diego, California 16

20 CONFIDENTIALITY AGREEMENT AFFILIATED BUSINESS DISCLOSURE CBRE 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 all Property (the Owner ), to be all-inclusive or to contain all or part of the information are provided for general reference purposes only and are based on assumptions relating to the general economy, market conditions, competition and other factors being 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 or CBRE, Inc., nor any of their respectful directors, officers, Affiliates or representatives make an representation or warranty, expressed or implied, as to the accuracy or completeness of this Memorandum or any 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 reserved 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 2015 CBRE, Inc. The information containing in this document has been obtained for 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. Photos herein are the property of their respective owners and use of these images without the express written consent of the owner is prohibited. 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.

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22 3710 Ruffin Road CONTACTS: Investment Advisors: Investment Properties-Socal Local Market Expert: MATT POURCHO Lic GARY STACHE Lic ANTHONY DELORENZO Lic DOUG MACK Lic MARK SHAFFER (L.A.) Lic MATT CARLSON Lic CBRE, Inc. The information containing in this document has been obtained for 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. Photos herein are the property of their respective owners and use of these images without the express written consent of the owner is prohibited. 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.