Leading the buy side is David Pemberton, who just last week resigned as partner and cashed in his stock 11 months after merging the tenant rep division of Tricor Realty Services with locally based UCR. Pemberton held onto the acquisition arm, renaming the firm to Centcom Realty Corp. The just-closed deal is the culmination of 23 months of negotiating for a portfolio--never on the market--during some of the toughest economic times that the nation has experienced since the Great Depression.
The value-add package has properties averaging 110,000 sf, some in need of renovation, with ages ranging from 15 to 18 years. The upside will be cornered by increasing occupancy, now at an overall 78%. In each case, the properties are dominant neighborhood centers at key intersections in Midland, Odessa, Abilene and San Angelo. Rents range from $8 per sf to $10 per sf.
Pemberton's dream deal fell apart once and then came back strong after buyers, lenders and loan arrangers heard retail pros at the ICSC confab predict secondary markets would be the hotspots of tomorrow as national retailers look beyond the metros to stake new claims. "In every one of these cities where we bought properties, there is a power center being planned," Pemberton, Centcom's chairman and CEO, tells GlobeSt.com. "We felt that added validity." The package was acquired from a Midland-based investor using single-asset structuring for each property.
Lender Merrill Lynch Capital toured each property and then signed off on a $24.1-million loan with a three-year term and floating interest rate. The equity stake brought together a mixed bag of investors: Pemberton and his Centcom partners, John Levinski, president and CFO, Warren Houser, executive vice president and marketing director, and David Howard, general counsel; Scott Lynn, director and principal of Metropolitan Capital Advisors here and his senior director, Todd McNeill; and David Solomon, head of locally based ORDA Corp.
Solomon, co-general partner in the transaction, provided a $2.5-million, three-year mezzanine loan and rounded up more investors. Lynn, who along with McNeill packaged the financing, says the Pemberton side put in $1.7 million while the Solomon side kicked in $4.4 million in equity.
"This was a very, very hard deal," Lynn says, citing the secondary markets and ill-fated timing with the Iraq War as primary stumbling blocks. An affiliate of Merrill Lynch provided a non-recourse first mortgage representing 75% of the purchase and renovation costs with an "earn-out" clause for tenant finish-outs, leasing commissions and capital improvements.
Pemberton says about $4 million will be pumped into rehabs at three centers: River Oaks Village in Abilene, Town & Country in Odessa and Southwest Plaza in San Angelo. The other three centers--The Colonnade, Plaza Oaks and San Miguel Square in Midland--are all newer, in good condition and 95% to 100% leased.
About $1.5 million will go into making over the Abilene center, anchored by a United supermarket that razed its older grocery and is raising a new one. Pemberton says there are 31 deals now working for the plaza, which was 51% leased at sale time. As for the balance of the package, the 78% occupancy will be above 90% in eight to 12 months, Pemberton vows. Right now, there are 160 tenants, most of whom have been in place at least 10 years, and more deals flowing into the pipeline.
Centcom, unlike the seller, "can infuse cash into the deals and open up tenants with new spaces," Pemberton says. "We bought it at a price to do deals at market or less." Centcom intends to use the same strategy--buying at a fraction of replacement value--as it shops second-tier cities in the Southwest, looking to spend as much as $150 million in the next two years. Initially, Centcom will lease and manage acquisitions, but the long-range plan calls for outsourcing contracts so the team can keep its eye on the buy side.
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