Fairfield, California

 

Background

Mission Village Shopping Center is located on an 18 acre site adjacent to the heavily traveled I-80 Freeway in the City of Fairfield, a commuter suburb between Sacramento and the San Francisco Bay Area. The property was initially anchored by a 35,000 square foot Alberston’s and a 55,000 square foot Payless Drug Store. Both anchors closed their stores in the late 90’s, but remained under lease obligations. The majority of the shop tenants vacated in the wake of the anchor closings. MetLife foreclosed on its loan in 2000 and hired a brokerage firm to sell the asset. After several months of attempting to find a buyer MetLife was willing to sell the asset at a discount. MetLife was concerned about environmental liability and sought a credible purchaser who could close quickly without a financing contingency. Capital & Counties USA met those conditions and closed in October 2001 at a price of $5.2 million.

 

Investment Strategy

Capital and Counties USA saw an opportunity to acquire a sizable, well located parcel of land at a price that would allow it to land-bank the asset until redevelopment was feasible. Capital & Counties USA believed that the property’s excellent location and the area’s booming housing market would support a multifamily development. The investment strategy involved: (i) negotiating the buy-out of tenant leases; (ii) rezoning the property to allow mixed uses; (iii) resolving the several complex environmental issues; and (iv) incorporating a residential development into the project.

 

Results

Capital & Counties USA successfully negotiated $2.5 million of lease termination fees which greatly reduced Capital & Counties USA’s basis in the project. An environmental remediation process was initiated and implemented and Capital & Counties USA further limited its exposure through environmental liability insurance.

 

Through a challenging and lengthy process with the City of Fairfield, Capital & Counties USA achieved its vision of rezoning the property to allow for a mixed use development. Capitalizing on the value created by the entitlements and the remediation of environmental issues, Capital and Counties USA put the property on the market in 2005. The offering drew significant interest from investors and developers who recognized the potential of the site. Wal-Mart ultimately out-bid the competition and purchased the Property for $14 million. The sale closed in July 2005 and resulted in a net profit of $11.3 million on an equity exposure of approximately $2.7 million.