The markets themselves must be attractive for investment. They will have a diversity and predictability of major employers, and will evidence both historical and projected population, employment and household income growth and stability. The region will have strong infrastructure, attractive cost of living in relation to median income and lifestyle choice for living and working.
Baceline's latest acquisition in the debt-free strategy, announced in August, is Bridgewood Plaza, a retail center in Des Moines, Iowa. The firm bought the property at a 10.2% capitalization rate from a lender for $4.7 million, a third of its pre-financial crisis value. The shopping center comprises 18 units, 14 of which are currently occupied. It is located across from the city's largest and highest-profile mall. Baceline now will launch a repositioning program in order to maximize investor value upon the sale of the property.
Baceline also offers investors a more opportunistic strategy in its new distressed initiative. Here, the firm may put as much as 50% leverage on a commercial property. It typically acquires assets from lenders at severe discounts to value. Puchi and his team will focus on properties that have a history of good occupancy and are well located in a viable surrounding community.
In January 2010, Baceline bought the 100,000-square-foot University Commons retail center in South Bend, Ind., for $1.8 million, about 30% of its original loan value. It was 37% occupied and in foreclosure. From Baceline's perspective, the property had several things in its favor: a low purchase price, its location in the hometown of the University of Notre Dame, and visibility and access from a main thoroughfare. As well, it sat next to a large regional mall, and was equidistant between two regional medical centers.
The next step was to bring the vacant space back to life. Through its market research, the Baceline team identified a growing need for medical office space in South Bend. This prompted the firm to design a major renovation plan for converting the big box into medical offices. A local medical group that was showing interest in leasing the space liked the plan, and contracted to purchase the property. It sold in September 2010 for $4.9 million-a hefty $3.1 million profit for the Baceline investors.
Baceline's debt-free portfolio has 14 properties, and its distressed portfolio five properties. The firm manages and improves all its assets in accordance with its Sustainable Initiative Program-"bringing green to Main Street," Puchi says.