Bayshore, Value-Added Acquisition Case Study: Vacant Infill Warehouse Purchased at Discount Prior to Stabilization

Opportunity

The property, owned by a local partnership, had been leased to the U.S. Postal Service for over 20 years. When the facility closed and the owners realized their exposure to extensive capital and releasing costs, the Prologis team negotiated an off-market purchase at a 30-percent discount to replacement cost. Favorable pricing, the property’s strategic infill location, lack of competitive product and easy access to both downtown San Francisco and SFO were all compelling offsets to leasing and capital risks.

Challenge

The property had been vacant for more than a year at the time of acquisition. The postal service had made many alterations that were not reusable and the existing configuration lacked adequate docks and functional storage areas. In addition to these physical challenges, new industrial use required administrative approval from the city because the building had been vacant for more than 12 months.

Solution

Prologis started marketing the property immediately using architectural renderings that envisioned a range of ways to make the space more functional. Simultaneously, Prologis initiated the planning process for a speculative renovation. When a lease deal with the San Francisco MTA materialized, Prologis made improvements to meet the user’s specifications and stabilized the property ahead of the original leasing schedule, adding over 35% to the value of the property after accounting for renovations.

Lesson

Local knowledge and relationships enabled Prologis to identify an off-market opportunity. Purchasing well-located vacancies at the right price can drive opportunistic returns well beyond stabilized asset acquisitions.
 

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