Broadway and University Industrial Portfolio

3440 & 3502 E Broadway Rd, Phoenix AZ

1626 & 1646 E University Dr, Phoenix AZ

 

Opportunity Summary

Located in the heart of Phoenix’s Sky Harbor submarket, the Broadway and University Industrial Portfolio boasts two cash-flowing assets with strong credit tenants and upside. 3440 & 3502 Broadway feature a 1.95-acre parcel with 27,816 square feet of buildings spread across two concrete tilt structures. Both buildings are manufacturing/storage warehouses with minimal office components. 1626 & 1646 University is a larger 2.13-acre parcel with a fully fenced-in yard and 31,024 square feet of concrete tilt structures spread across two buildings. The University buildings feature minimal office space (approximately 1,500 SF) with the remaining warehouse boasting heavy power, two cranes, and 22-foot clear height. With an overall portfolio coverage ratio below 28%, both assets possess much sought-after yard space in a submarket that is land-constrained, with little to no new inventory of comparable product type being constructed. The properties are zoned Ind. Pk. (Industrial Park) and A2 – Heavy Industrial, respectively, giving both locations very desirable zoning, allowing for a multitude of uses and maximizing tenant mix when needing to re-lease down the line.

 

Due to the volatility in the debt markets causing an expansion in cap rates, we would be acquiring the portfolio at a healthy 7.73% going-in yield while still being 10% – 20% under market on the in-place rents, presenting an incredible mark-to-market opportunity, stabilizing at a 9% yield on cost. We believe this portfolio perfectly blends high yield in-place income with back-end upside for an incredible investment opportunity.

Key Information

  • Purchase Price: $11.8 Million
  • TI/Leasing Budget: $631,660
  • Equity Required: $5.4 Million
  • Close of Escrow: 08/31/2024
  • Zoning: A2 (Heavy Industrial) and Ind. Pk. (Industrial Park)
  • IRR: 15.03%
  • Equity Multiple 1.94
  • Year 1 Cash on Cash Return: 2.79%
  • Purchase Cap Rate/Stabilized Cap Rate: 7.75/9.39
  • Estimated Loan Term: 3 Years
  • Fixed/Variable Rate: Fixed
  • LTC: 60%
  • Estimated Loan Rate: 7.25%
  • Deal Time: 5 Years

Property Details

  • Buildings – 4
  • Building Size
    • 12,497 SF (3440 Broadway)
    • 15,319 SF (3502 Broadway)
    • 10,350 SF (1626 University)
    • 25,000 SF (1646 University)
  • Lot Size
    • 1.95 (Broadway)
    • 3.24 (University)
  • Zoning
    • Industrial Park (Broadway)
    • A2 Heavy Industrial (University)
  • Market – Phoenix, Arizona
  • Major Cross Streets
    • 32nd St. and Broadway Rd. (3440 & 3502 Broadway)
    • 16th St. and University Dr. (1626 & 1646 University)
  • Freeway Access
    • I-10 within one block (Broadway)
    • I-10 within one block (University)
  • Year Built
    • 1986 / 1983 (Broadway)
    • 2008 / 1970 (University)
  • Concrete Construction

Business Plan

Broadway and University Industrial Portfolio

3440 & 3502 E Broadway Rd and 1626 & 1646 E University Dr

The Broadway and University Industrial Portfolio presents an ideal mark-to-market opportunity, along with an exceptional in-place yield, making it an outstanding investment prospect. The acquisition price of $186 per square foot is below the sub-market average of $204 per square foot, recorded over the past 12 months for comparable assets of similar vintage and size. These properties typically have a coverage ratio of 36%, whereas our portfolio averages 28%. For properties with a coverage ratio below 30%, our acquisition basis significantly undercuts the average of $217 per square foot.

At 1626 & 1646 University, the in-place income is divided between two tenants: Truck Pro, paying $1.29 per square foot, and Hajoca Corporation, paying $1.23 per square foot. These leases include 3% annual increases and have a weighted average lease term (WALT) of 3.58 years. They are currently priced 10% below the market rate for comparable low-coverage sites. Similarly, at 3440 & 3502 Broadway, Tecta Roofing pays $1.10 per square foot, and a new tenant, currently negotiating a lease, is projected to pay $1.20 per square foot. Despite recent signings, we have comparable data supporting a similar 10% discount to current market rates. We project the net operating income (NOI) will rise from today’s $914,772 to $1,165,985 upon stabilizing the entire portfolio after five years.

We have allocated a budget of $10 per square foot across the entire portfolio for property enhancements (paint, concrete seal, miscellaneous updates) to ensure we are maximizing our rental rates upon signing new leases. Our model conservatively accounts for four months of downtime across all potential vacancies, regardless of renewal expectations. Given the supply constraints of lower coverage sites in the submarket, we believe we can outperform the underwritten downtime with very limited risk following capital improvements.

Market Analysis

Metro Phoenix Market Dynamics

• Maricopa County, with 62% of the total population of Arizona, remains the #1 county in the nation for population growth.

• Metro Phoenix ranks #4 in the nation for industrial absorption over the last 12 months, per CoStar analytics.

• Strong tenant demand continues to provide downward pressure on vacancy which further strengthens rental rates expansion. Southeast Valley vacancy finished Q3 2023 at a healthy 4.6%.

• As of Q3 2023, valley wide net absorption surpassed 8.3 million SF with continued leasing velocity.

• Phoenix industrial rents are expected to grow 20% over the next four years.

• Industrial rents in Phoenix have demonstrated consistent growth, increasing 50% since the beginning of 2020 through Q3 2023.

Location

Broadway and University Industrial Portfolio

3440 & 3520 E Broadway Rd and 1626 & 1646 E University Dr

Why Broadway and University Industrial Makes Sense

  • Infill location
  • Close to major highways
  • Low coverage sites
  • Under market rents
  • Strong in place yield
  • Limited comparable supply

Returns Overview

Underwriting Assumptions

  • Replacement Rental Rate: $1.48 - $1.60 / SF
  • Vacancy Timing Upon Lease Expiration 4 months
  • Exit Cap Rate: 6.25
  • Sale Price $295/SF
  • Deal Time Horizon: 5 Year

Partnership Structure

Distributions and Fees

  • Monthly distributions of operating profits
  • 1% Acquisition fee
  • 1% Loan Fee
  • 1% Asset Management Fee
  • 8% Preferred return to LP’s
  • Waterfall structure as follows:
    1. 0-13% IRR to LP – 80/20 split
    2. 13-16% IRR to LP – 70/30 split
    3. 16%+ IRR to LP – 65/35 split

Tenant List

Hajoca – In 1858, one enterprising individual invested his life savings of $200 to start a business grinding key stops for plumbers in Philadelphia. More than 150 continuous years of service later, that business is known as Hajoca Corporation. Hajoca has a robust history of helping to shape advances in plumbing. But we attribute our success to two simple truths – a unique business philosophy and talented people.

Truck Pro – A rich history with the promise of great things to come. When we started out in 1958 as a small heavy-duty truck parts shop in Memphis, Tennessee, our goal was to be better than the next guy down the street or, even the next county over. It’s all about trust, relationships, parts on the shelf and reliable delivery-do the right things and you’ve earned a customer for life. This is a test.

Tecta America – Tecta America is the leading national commercial roofing company. We are 4,200 roofing professionals throughout 93 locations nationwide. Our experts are active in essential trade groups, like the NRCA, USGBC, BOMA, and IFMA, to ensure we remain at the forefront of the industry, identifying your needs. For the long term, we are in business, meaning your warranties are secure. We handle substantial projects and can carry out almost any project with insurance coverage and bonding.

Company Overview

Broadway and University Industrial Portfolio

3440 & 3502 E Broadway Rd and 1626 & 1646 E University Dr

At Hanson Capital Group, experience is not just a metric—it’s our foundation. Boasting over 100 years of combined expertise in real estate, we’ve cultivated a reputation for excellence and strategic insight in the market. Our formidable investments, nearing $300,000,000 under management, are a testament to our sustained success. Driving our vision forward is a harmonized team of executives and directors. CEO Chris Hanson, COO Zach Price, Managing Director of Acquisitions Chris Pike, and Managing Director of Asset Management Jim Tainter lead the charge. Together, they craft the trajectory for Hanson Capital Group, ensuring we remain at the forefront of the real estate industry.

Established in 2008, Hanson Capital Group embarked on its mission to become a trusted auction bidding service provider and create a lasting enterprise focused on creating wealth for ourselves and our partners. Aligning with prominent institutions, our dedication and energy quickly became evident, resulting in the acquisition of over 1,500 single-family homes out of foreclosure within an impressive six-year span. However, our sights were set higher. Identifying a unique opportunity to elevate our bidding pursuits, Hanson Capital, LLC was established in 2010 as a state-licensed mortgage bank. Today, Hanson Capital thrives as a leading hard money and bridge debt lender, and, to date, has overseen transactions exceeding $500 million, while consistently maintaining an equity portfolio averaging $40 million.

While our initial investments were rooted in real estate backed lending, in 2010 we began our pursuit of direct investment in value-add multifamily assets. After nearly a decade of that value-add multifamily strategy, and after buying and selling a few thousand apartment doors, our focus shifted in 2018 towards industrial real estate, which continues to be the focus today.

We are now deeply entrenched in industrial real estate within the so-called “Sun Belt”, with a notable presence in strategic areas like California, Arizona, and Texas. The result of this commitment is over $250,000,000 in industrial real estate and 1.27 million square feet of current assets under management.

Our process is invaluable to our success. All investment decisions are made by our investment committee in accordance with our Investment Policy Statement (IPS). Strategically crafted, the IPS emphasizes our central mission: capitalizing on inefficiencies in real estate to provide sustainable returns through proven and disciplined investment and management strategies. Every facet of the IPS has been intricately designed to demystify our methodologies, underscoring our commitment to transparency, accountability, and the responsible management of entrusted capital. The IPS also guides us in making informed, consistent decisions, helping to mitigate risks, and optimize returns, while ensuring that our actions align with our long-term investment objectives.

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Chris Hanson

Founder

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