Sunbelt Value-Add Retail Offering Is Targeting A 20.3% IRR.

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Two trends we have heard about over the past several years are retail real estate’s enduring strength and Sunbelt markets’ growth. An investment opportunity from EquityMultiple brings these two ideas together. Montague Corners is a 96% occupied, 107,000-square-foot neighborhood shopping center located in the booming market of Charleston, South Carolina. The investment thesis is simple: a hot market and a popular sector can make for a winning combination.

Commercial real estate has historically outperformed the stock market, but few investors have the capital or resources needed to invest in this asset class. This platform allows individuals to invest in commercial real estate.

Where The People Are, Or Will Be

Charleston is one of the fastest-growing areas in the country, part of the Sunbelt boom. The Charleston-North Charleston area has over 836,000 residents and was named one of U-Haul’s top growth cities for 2023 because so many people are moving there. While the warm weather and charm of the Holy City attract retirees from the North, more job opportunities are also coming to the area. Charleston is fast becoming a hub for the rapidly expanding life sciences sector. Some of Charleston’s largest private sector employers include Roper St. Francis Healthcare, Boeing, and Trident Health System.

This retail property in northern Charleston has excellent visibility via busy Dorchester Road, which sees over 28,200 vehicles daily. It is located near Interstate 526 and adjacent to a new Greystar apartment complex with over 335 luxury units, which will open in 2024 and is currently being leased.

Retail vacancy in the area is low, and new supply is slow to come online. According to data from Lee & Associates, in the first quarter of 2024, Charleston had a vacancy rate of 3%. The property was built in 1987, and 61% of its space is leased to national tenants, including Planet Fitness (NYSE:PLNT), Dollar General (NYSE:DG), Save-A-Lot, and Harbor Freight. There are currently 20 tenants at the property.

Making The Most Of A Prime Location

The property sponsors include O’Connor Capital, Sopris Capital, and Woodlock Capital. Woodlock Capital is the boots-on-the-ground expert in the area, while O’Connor Capital has a deep roster of national tenants. Since starting in 1983, O’Connor has purchased over 150 properties, totaling over $30 billion in investments. It has significant experience in acquiring and developing retail properties. Woodlock Capital was formed in 2020 with a focus on value-added income-producing properties.

The sponsors purchased the project below market value, giving the deal an 8.3% going-in cap rate on the first year’s net operating income. The Property’s anchor tenant, Planet Fitness, has a lease in place until 2027 with two 10-year options. The base rent on the lease is 35% below market value. The property seller spent $4 million on a recent renovation, including a new building facade and updates to the parking lot and landscaping.

The property also has a developable 0.68-acre parcel. Part of the strategy is to sell the leasehold interest in that parcel, possibly to a local coffee shop, which could bring in $95K in annual gross revenue. The sponsor is also working with Harbor Freight to expand its space to build additional square footage. Through the sale of the undeveloped parcel and Harbor Freight’s out-parcel alone, the sponsor plans to generate $3.7 million in proceeds.

Investors can participate in the $2.04 million LP equity investment with a minimum investment of $15,000. The investment targets an average cash-on-cash return of 6.5%, a net IRR of 20.3%, and a 1.6x equity multiple over a 3-year hold period. The sponsor has already retained financing for the property.

The combination of a sponsor with a strong track record, a property that already has tenants in place, and a prime location makes this project an interesting proposition. While the offering’s target returns are appealing, investors should always carefully read all offering documents and understand the risks inherent in any real estate investment. The financials can change and are not a guarantee of future performance. Every investor is encouraged to conduct their due diligence. For those comfortable with the risks and a Sunbelt project with a relatively short hold period, EquityMultiple’s latest offering may be worth a closer look.

Looking For Higher-Yield Opportunities?

The current high-interest-rate environment has created an incredible opportunity for income-seeking investors to earn massive yields, but not through dividend stocks… Certain private market real estate investments are giving retail investors the opportunity to capitalize on these high-yield opportunities and Benzinga has identified some of the most attractive options for you to consider.

For instance, the Ascent Income Fund from EquityMultiple targets stable income from senior commercial real estate debt positions and has a historical distribution yield of 12.1% backed by real assets. With payment priority and flexible liquidity options, the Ascent Income Fund is a cornerstone investment vehicle for income-focused investors. First-time investors with EquityMultiple can now invest in the Ascent Income Fund with a reduced minimum of just $5,000.

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