Nordic Realty Partners made a strategic investment in January 2018 by acquiring an office building located at 13303 Washington Avenue from an affiliate of Johnson Bank. Situated on Hwy 20, near I-94, this property held great potential due to its prime location at the premier intersection in Racine County and its immediate adjacency to the 156,000 SF industrial building leased by Foxconn in Mt. Pleasant Business Park. With these favorable factors in mind, Nordic Realty Partners saw an opportunity to capitalize on the growing demand in the area as a result of robust economic growth, corporate relocations, and the recently announced Foxconn manufacturing campus.
At the time of acquisition, 13303 Washington Avenue consisted of a versatile 10,430 SF office/retail building along with surplus land spanning 3.1 acres. Nordic Realty Partners recognized that the excess land was not essential for their investment strategy and promptly decided to sell it. This allowed them to focus on optimizing the existing building to maximize its potential as a multi-tenant investment property.
Shortly after acquiring the property, Nordic Realty Partners initiated an asset repositioning strategy, subdividing and converting the property from a single-tenant to a multi-tenant property. This pivot was designed to diversify the income stream and expand the tenant base, thereby reinforcing the property's financial resilience and market appeal.
The transformation process was carried out efficiently, and by August 2018, the property was fully leased,highlighting the strength of the location, the efficacy of Nordic's leasing efforts, and the property's appeal to a diverse range of tenants. This tenant diversification further de-risked the asset and elevated its attractiveness to potential future investors.
In January 2020, riding on the crest of strong demand for commercial properties in the region, Nordic Realty Partners made a strategic exit. The sale validated Nordic's investment approach and realized significant returns, demonstrating the value of their disciplined, value-add real estate investment strategy.
The sale of 13303 Washington Avenue marked a significant achievement for Nordic Realty Partners, as they were able to execute a well-planned investment strategy. Their decision to acquire the property in a promising location, capitalize on the proximity to the Foxconn manufacturing campus, and optimize the existing building by subdividing it into a multi-tenant space proved to be a successful endeavor.
Nordic Realty Partners' ability to identify market trends, leverage their knowledge of the local area, and make strategic decisions allowed them to unlock the full potential of the property. Their swift action in selling the excess land and creating a multi-tenant space ensured a high return on investment and attracted a diverse range of tenants.
Overall, the purchase, subdivision, and subsequent sale of 13303 Washington Avenue demonstrated Nordic Realty Partners' strategic insight, disciplined execution, and value creation capabilities. This successful investment not only generated significant returns for Nordic Realty Partners but also contributed to the economic growth and development of Southeastern Wisconsin.
A Deep Dive into Real Estate Portfolio Diversification: Unlocking Stability and Profitability
One of the keys to maintaining success in the world of commercial real estate (CRE) investment lies in a term familiar to most but truly mastered by few - portfolio diversification. Through strategic diversification, we can unlock greater stability and profitability in our investments. Let's dive deep into this powerful principle.
1. The Diversification Spectrum
Diversification in CRE isn't a one-size-fits-all strategy. It's a spectrum that includes a variety of asset types, geographical locations, and risk levels. Some investors may choose to spread their investments across multiple asset classes, including retail, office, industrial, and multifamily properties. Others may diversify across different markets and regions, capitalizing on varying economic and demographic trends. Don’t forget to assess the risk-return trade-off across your portfolio. Balancing high-risk, high-return investments with more stable, low-risk ones can provide a safety net in volatile markets.
2. Benefits of Diversification
Why is diversification crucial? The simple answer is that it helps you spread risk and take advantage of diverse opportunities. The performance of CRE properties can depend on local economies, industry trends, and a host of other factors. By diversifying your portfolio, you can mitigate the impact of any single adverse event and balance the ups and downs of different markets and asset classes.
3. Implementing Diversification in Your Portfolio
Implementing diversification begins with understanding your investment goals and risk tolerance. This will guide your selection of asset classes, markets, and risk levels that fit your portfolio. It's important to stay informed about the market and economic conditions and adjust your strategy as needed. Just remember: Diversification is a marathon, not a sprint. Take your time, and make informed decisions.
4. The Role of a Professional Syndicator
This is where a seasoned real estate syndicator comes in. With extensive market knowledge and experience, syndicators can help identify diversification opportunities and execute a balanced investment strategy. They can assist in sourcing properties, conducting due diligence, structuring deals, and managing assets, allowing you to enjoy the benefits of diversification without the complexities of direct property ownership.
5. The Power of Diversification
The power of diversification can't be overstated. It not only protects your portfolio from market fluctuations but also paves the way for more stable and potentially higher returns over the long term. It's the key to unlocking both stability and profitability in your CRE investments.
So, are you ready to diversify your portfolio and reap the benefits? Remember: diversity isn't just the spice of life; it's the fuel for a successful real estate portfolio.
Keep an eye on this space for more insights on commercial real estate investing. If you enjoyed this deep dive into diversification, make sure to share it with your network and subscribe to our blog.
Investment Disposition: Wrigleyville Mixed-Use
3824 N Clark Street (10,430 SF) in Chicago, IL - Closed April 2018
We are pleased to announce that a Nordic affiliate closed on the sale of a mixed-use property in Chicago, IL in April. The property consists of two multifamily units, both three-bedroom and two-bathroom layouts, and a 1,600-square-foot fully-leased retail space. Situated just north of Wrigley Field and the burgeoning Wrigleyville retail & entertainment district, 3824 N Clark features two fully-rennovated three-bedroom and two-bathroom multifamily units and a fully-leased 1,600-square-foot retail space. The property also benefits from billboard signage, storage and parking income, providing multiple revenue streams.
Project Overview
Property was a mixed-use residential/retail building that Nordic purchased empty and in poor condition, in 2015. We executed a full rehab, and leased 100% of the building within twelve months, including a master lease to an international vacation rental firm for the two residential units and optimized management of a four-car parking lot in the rear for Cubs game days. Upon sale, investors realized a 64% return on their equity after two years and nine months.
Key Financials
Net operating income increased more than 3x from $30K/year to $92K/year, Increased gross revenue by 130% from $56,000 to $130,000.
Sale in April 2018 for approximately $1,375,000 resulted in a gross 25% levered project IRR and a net 21% IRR and 1.64x equity multiple to investors.
L.A. Multifamily Sizzles and Downtown Development Booms
2016 was a record setting year for LA Multifamily, and 2017 continues strong
Nearly $10 billion was invested in Los Angeles County during 2016, including more than $3 billion in 4Q alone (CoStar), which was spread fairly evenly across the County. Investor demand remains wide and deep, including both national investors and considerable foreign investment. L.A. is currently considered one of the best US cities for real estate investments for long-term capital preservation.
Demand Remains HIgh & Supply increasing but mostly in Class A and Downtown
A strong labor market (especially in the hospitality and healthcare sectors), trends toward urban living, and high housing prices are driving renter demand. Rents grew approximately 5% for 2016 and rent growth expectations for 2017 are a similar rate (5.4% - Marcus & Millichap). Representing a plus for future supply, the highly contested Measure S was defeated in March, which targeted the practice of changing city rules to permit buildings that are taller or denser than the established restrictions would ordinarily allow and would have imposed a moratorium lasting up to two years on building projects that require zone changes and other alterations in city rules. With the massive housing shortfall facing SoCal, the measure would have exacerbated the problem, further restricting the needed supply of additional housing units to take the pressure off of pricing and rents.
New units under construction
Above is a chart of units under construction, showing deliveries increasing into a long-term high, with much of the new supply in the long stigmatized but resurgent Downtown LA (DTLA), so much so that vacancy rates (10% according to one report, compared to County average of 2-4%) and concessions have begun to push up, making lenders more cautious on new projects in the submarket.
Strong absorption and rental rate growth is drawing new development, but to date much has been in high-end Class A properties. The reasons are simple. Building and land costs are both very high, so much so that new construction of Class B and C product in nearly all areas simply isn’t profitable. This is a potential opportunity for value-add investors, since affordability is a huge issue in SoCal and the lack of new supply for lower rent properties will likely continue to drive positive fundamentals for these properties into the future.
DTLA and other Submarket growth
Here's a view of the new DTLA skyline showing projects recently added and further below a few of the largest projects underway:
Circa, slated for delivery in spring 2018, is a $500 million mixed-use development, and one of multiple large-scale multifamily projects currently under construction in DTLA
Wilshire Grand Center, a 1.6 million square-foot office, hotel and retail tower being developed by Korean Air — now the tallest structure west of the Mississippi.
The 2.1 million square-foot Metropolis Los Angeles, four glassy high-rise towers being developed by Greenland Group, China’s largest real estate developer, which is state-owned.
In addition to DTLA, two of the submarkets seeing the most activity in new development are Hollywood & Koreatown, both of which allow higher density new development and have recent expansions or renovations to Metro stops--LA's public subway system.
Data from LA City Planning
"Silicon Beach" as it is now termed, which is an area that is welcoming new high-tech developments from Google, Yahoo and many others and includes Venice Beach, Marina Del Rey, Playa Del Rey, and Westchester is currently undergoing a mini development boom. In addition, outlying areas all around the city including the South Bay, San Fernando Valley, Glendale, Pasadena and the San Gabriel valley are all seeing a run in new development and rehab projects as a result of the rent and pricing pressure.
Pricing remains rich
Pricing is rich and shows no signs of letting up--with average cap rates declining to the mid-4% range, and many value-add, even rent controlled deals trading into the 3% range on in-place income. Smaller investors are having to compete with deep pocketed and institutional players on premium assets and the most popular west side neighborhoods, which is driving many into smaller and more "affordable" deals in less desirable neighborhoods in search for yield. The average price per unit on closed transactions topped over $260,000 in the past year, with the highest on Westside properties, which averaged $530,000 per unit (Marcus & Millichap).
"Keep Austin Weird"
Capital value growth rates similar to Toronto, Vancouver and some 2nd tier cities in China.
Austin has exploded in the past seven years, driven by a potent combination of high population growth and low new development volume. The tech sector has boomed, attracting new high and low-income earners (about 150 net migration per day, and counting...), which has triggered high demand for real estate. On the flip side, new real estate development has been relatively restricted due to low-density zoning, low height restrictions and high environmental boundaries (not withstanding the above photo!).
With the warm Texas weather and 0% tax rate, people are still coming and this shows no signs of slowing down. Since 2012, single family home values have increased +100-140% in some neighborhoods, and commercial properties have recorded similar gains. Simply put, Austin is one of the best real estate markets in the country for income and capital value growth if you can find the right property.
The bad news is good real estate deals are hard to find. Most properties are bid up substantially, with income barely covering a loan payment (if at all!). And since occupancy has been so high, landlords have deferred maintenance, and thus in most cases assets need work. Pricing can get out of hand; competition for properties is extremely high, and even the smaller assets in high demand locations sell for 4-4.5% yields. Most accretive deals are off market and incredibly difficult to find.
But we are home to the best restaurants in Texas, the best BBQ (maybe), the best music scene, and a population of some of the most open minded and tech-savvy citizens in the nation. All at the doorstep of Hill Country. We've added 8,600 hotel rooms in the past several years - plenty of room for SXSW and the ALC Music Festival. Come visit!
Fun Austin Facts - The city's slogan is "Keep Austin Weird"...it is the fastest-growing, youngest, safest big city in the U.S (average age is 28) and has one of the the highest percentage of millennials of any US city....Austin has the largest urban bat population on the continent!?
Residential hotbed - Apartment rents have grown 5-8% per year since 2012 and while moderating, rent growth is expected to remain elevated above the US average and Austin remains 96% occupied. We are a top 15 exposure for multi-family REITs. There is a chronic lack of affordable housing anywhere near the CBD and transit routes.
"Silicon Hills" - Tech jobs are creating booming office demand. In 2016 Austin had the highest office net absorption in the country as a % of inventory, 1.6% vs. 0.2% national average, according to JLL. Whole Foods is headquartered here, and Amazon, Facebook, Google and AthenaHealth have all leased large blocks of space in the past 24 months.
The Domain - One of the largest mixed-use developments in the country, operated by Simon and Endeavor Real Estate, continues to grow at a rapid pace. Class A office rents here are now what they were downtown three years ago (low $30s/SF). Other prominent redevelopments are the Seaholm Power Plant, Dell Medical Center and Mueller Airport, driving growth and attracting more national interest.
Fundamentals - Over 150 people move to Austin per day on a net basis, driven by good jobs, warm weather, and corporate relocations. Analysts expect 8-10k household formations per year for the next several years. Not bad for a city the size of Madison!
We will be posting the best tidbits and charts in the months ahead. Please bookmark or sign up for our mailing list so you are updated with the latest posts.
Welcome to our home markets!
Commercial real estate investments in Chicago, Austin and Los Angeles.
We invest where we live. Nordic Realty Partners is a boutique, independently owned small cap real estate private equity firm that focuses on value-add properties where we can control risk and actively manage the asset. Our home markets are among the hottest cities in the country - Chicago, Austin and LA. The Nordic principals live in these cities for a reason - all are growing, innovating and constantly re-inventing. We do not invest in bubbles or trends - but rather neighborhoods, where businesses, populations, and families are growing and thriving.
We offer accredited investors limited partnership opportunities where you are a true partner - with full and transparent access to underwriting, reporting and most importantly, us. Our partnership structures are easy to understand, fees are low, and our assets strategies are straight-forward - with target annual cash yields 8-10% (distributed) and annual total returns in the 12-16% range, after fees and taxes. The Nordic principals have on average 18 years of commercial real estate investment experience from industry leading firms and banks, and we are bringing the best of what we have learned to individual investors and family offices.
Please join us in successfully investing in our neighborhoods and follow this blog for topical commercial real estate investment and development info and tips, market trends, and insights into where we invest and why.