In the first quarter of 2019, we acquired this 183,000-square-foot, single-tenant industrial facility at a rare 9.2% cap rate. Market perceptions of high risk stemmed from environmental concerns and a specialized combination of R&D, office, warehouse, and distribution uses—potentially challenging to re-tenant if the occupant vacated.
Upon due diligence, we discovered the tenant, Hikma, had robust financials (over $2 billion in annual revenue at 25% margins) and was critically dependent on the property. The facility shared infrastructure with Hikma’s adjacent manufacturing site, making relocation highly unlikely.
We resolved environmental liabilities through a seller-funded escrow and navigated the tenant’s right of first refusal, which they ultimately did not exercise.
The lease featured CPI-based annual rent escalations, which provided consistent income—especially valuable during COVID.
We leveraged the property at approximately 70% with a 4.75% interest rate, generating significant cash flow during our two-and-a-half-year hold.
When Hikma exercised its purchase option, we sold the property at a 145% return on our initial $4 million equity investment—realizing $5.88 million through combined cash flow and the eventual sale price.