Princess St Parking Lot

Wilmington, NC | Off-Market Acquisition | Oct 2020

Overview

The Princess St property is a surface parking lot consisting of 28 spaces in the phenomenal Wilmington MSA. The asset was acquired in an off-market transaction, and sourced via our internal direct-to-owner marketing efforts.

About the Project

Upon receiving a direct mail piece, the owner reached out to gauge our interest and was ready to sell in short order. As a doctor, the owner’s day job precluded him from appropriately overseeing management of the parking lot. He entrusted his son with day-to-day operations, which led to significant underperformance. He was only generating around $34,000 per year in revenue.

The Challenge

Touting an exceptional location on a hard signalized corner in a growing market, the Princess St parking lot has good bones and great fundamentals. That said, poor management resulted in lower-than-expected yields, leaving the owner yearning to cash out. In parking, asset owners have the option to either operate the facility themselves or lease their parking lot to a third-party operator.

The Plan:

Our strategy is to sign favorable long-term NN/NNN leases with credible third party operators capable of generating far more parking revenue than those who self-manage. While negotiating the purchase price with the owner, Sunrise put out a request for bids (RFB) from regional parking lot operators. The most favorable option was to sign a 10-year NN lease, providing base rent of $72,000 annually as well as annual rent escalators to protect the investment from inflation risk.

The Outlook

Knowing in advance how much revenue the property would generate, Sunrise went back to the owner and negotiated a $695k purchase price, which pencils out to a 9.3 capitalization rate at acquisition. Based on the purchase appraisal of $1mm, we were able to achieve a 43% return on equity on day one. Our long-term lease provides stable, recurring income for many years into the future. This visibility of income over the next decade provides safe, predictable cash flow (and clarity) for our Fund 3 partners.