$84M TIC Sale Surpasses Expectations

SANTA FE SPRINGS, CA-Argus Realty's sale of the 45-acre Heritage Corporate Center exceeded the San Clemente-based tenant-in-common sponsor's expectations both on return and the time that would be required to reach the company's projected return, Argus says. The property, a 23-building class a business park, sold to Legacy Partners of Foster City for $84.2 million.

Argus and its 35 tenant-in-common investors received a 56.7% annualized return in 28 months from the 720,301-sf property.Heritage, which surrounds the five-acre, city-owned Heritage Park and botanical gardens, was acquired by Argus in December, 2003 for $57.3 million when occupancy was 75.5%.

Argus executed new leases totaling 330,000 sf and renewed 195,000 sf in existing leases, raising occupancy to 96.8%. "When we acquired Heritage, Argus and its investors took leasing risk," explains Dick Gee, Argus chairman and CEO, who says that the company "took an assertive strategy and started leasing vacant space before we closed escrow."

Jean Murphy, the Argus acquisitions SVP who spearheaded the purchase three years ago, notes that thanks to the aggressive leasing strategy, the company negotiated a 45,290-sf lease with the County of Los Angeles and executed the lease a week after closing on the purchase. Argus also leased a 49,142-sf building to Pull R' Holdings while it was in escrow and a deal with Thermal Engineering International two months after closing that raised occupancy to 94%.

Argus CEO Gee says that the company originally planned to hold Heritage for five years. But when Argus received several substantial offers that generated returns that were more than four times greater than the 13.4% annual return Argus had projected, "We decided to cash out," Gee says.

Despite the performance of the Heritage property, Argus President Tim Snodgrass cautions investors and financial advisers to not assume that real estate investments typically generate high double digit returns. "Heritage was an extraordinary situation," according to Snodgrass, who comments that "these extremely high returns are not likely to be duplicated anytime soon."

For the past five years including the 29 months Argus owned Heritage, Kearny Real Estate handled on-site property management while John Biven of CB Richard Ellis was leasing director for the last 17 years. Argus VP of dispositions Lori Perro headed the sales transaction, along with Gary Ainsworth, Argus VP of asset management.

The sale was brokered on behalf of Argus by the Kevin Shannon team at the South Bay office of CB Richard Ellis. Besides Shannon, other members of the team are Michael Moore, Scott Schumacher, Paul Perkins and Rob Hannan.