Introduction

Competing against more than 16 bidders, AMERICAN PROPERTY ENTERPRISES (“APE”) was able to acquire a portfolio of six San Diego County business parks totaling 567,000 s.f. and comprised of multi-tenant office/warehouse and office spaces typically ranging from 1,000 s.f. – 3,000 s.f. Built mostly in the 1970’s and early 1980’s, these assets suffered from considerable architectural obsolescence and deferred maintenance. Their locations and real estate fundamentals were excellent, however, and the opportunity existed to reposition them from “C-“ to “B+” core assets. This was accomplished with architectural modifications and enhancements, modern color schemes, new ADA-compliant flatwork, selective elimination and enhancement of landscaping, new lighting fixtures, and new signage. Elimination of deferred maintenance (primarily consisting of roof, HVAC, and paving replacements and repairs) were also significant elements of the business plan.

Another “value-add” component of this portfolio was the opportunity to convert ordinary industrial buildings into much higher rent showroom/office spaces for those projects with frontage on major streets and thoroughfares. This was accomplished by providing larger tenant signage areas, pole signage and monument signage, increased parking spaces, and more interesting and colorful elevations.

Due to the poor physical condition of the portfolio and its considerable deferred maintenance over many years, the properties were unable to attract good quality tenants providing higher value goods and services. This negative attribute was exacerbated by poor property and asset management which failed in most cases to perform routine credit checks, seek prior landlord references, obtain financial statements, or even have tenants complete detailed tenant applications. As a result of these shortcomings, over 40% of this portfolio’s tenants were in default, mostly for past due rent.

The goal for the business plan was to substantially improve the portfolio’s revenue stream, not only through increasing the quantity of rents but also their quality and durability. By eliminating deferred maintenance and enhancing the properties’ appearance to nearly “A” status, more tenants with better quality operations were attracted to the properties. With better asset management by APE, including careful screening of prospective tenants’ creditworthiness, past business experience, and space utilization, APE was gradually able to replace tenants in default with better quality tenants paying higher rents on a regular basis. APE continues to own and operate five of the six business parks in this portfolio, including all of the Miramar submarket assets totaling nearly 400,000 s.f.