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Desert Sky Station was a bank-owned, triple net-leased strip mall on the corner of Thomas and 75th in Phoenix, AZ. The property was acquired below cost, with below-market occupancy and below-market rent. It was sold two years later for a total net return of 39.3% in addition to the return of capital. In 2008 the property was built to suit Regency Beauty Institute, which occupies approximately 6,000 square feet. Regency has 80 locations in over 20 states. The original developer added retail units on either side of the anchor tenant, which brought the total square footage up to 18,000 sq. ft. The property was strategically located across the street from Desert Sky Mall, which is anchored by Dillards, Sears, and La Curaco. The population within a three mile radius is 163,000 as of 2009. This population has an average household income of $58,700. Thomas Road is driven by approximately 57,000 cars per day, while 75th is driven by approximately 70,000. This strong location, the ability to acquire the property at a discount out of foreclosure, and the potential for increasing cash flow by increasing occupancy, are what made the property particularly attractive.
The investment was structured for Tenant-in-Common (TIC) ownership, and designed to qualify as a replacement property in a 1031 exchange. Depending on each investor's tax basis at the time of invesment, many investors were also able to utilize depreciation to defer the taxes on a portion of the income derived from the investment.
- Stable, long-term cash flow backed by value-oriented retail property.
- Capital gains tax deferral as a 1031 replacement property option.
- An option for income-tax deferral via depreciation.
- Significant potential upside due to a sale or to increasing rental income based on stabilizing the occupancy.
This property performed inline with its projections, providing steady cash flow for 1031 and cash investors and a significant backend return. Individual investors in the program derived income-tax deferral from the 1031 qualification and from the depreciation allowed for commercial real estate.
Annualized Cash Flow Return:
Total Return (Incl. Cash Flow):
39.3% in 24 and ½ months in addition to a 100% return of capital.
[Past performance does not guarantee future results. This offering’s results are not necessarily indicative of future recommended offerings. Real Estate Investing is subject to risk, including, but not limited to potential disruptions in cash flow, loss of principal, illiquidity, etc.]
Written By: Staff