written by
Rocco Cortese

A Detailed look into general partner investing and navigating a deal through a pandemic

Throughout my years raising capital for our real estate investments, I have encountered a few investors who ask how they can be the General Partner instead of the Limited Partner in a deal. The first thing that would come to mind when I heard those questions is: Invest thousands of hours in learning a complex industry, and hundreds of thousands of dollars into people and technology, and you will be just getting started. Putting together a successful commercial real estate deal is not for the faint at heart or the inexperienced. It takes years of hard-work, talented people and you have to actually find the right deal in a very competitive market. That said, Ingenuity, Collaboration, and Stewardship are core values of our firm so we always tried to find a way to give our investors a taste of the General Partner “like” returns by targeting value add properties with higher return scenarios.

 

During the Pandemic, we were raising our second Fund and in March of this year (2020) we purchased an office property. Bad timing? Not really. We still love the deal and our basis, and in fact, feel very bullish about the long-term opportunity to generate a strong return for our investors. The structure in that deal, however, was a little different. We had a joint venture partner in that property, and our Fund was acting as the General Partner. All of the returns from the Joint Venture, including carried interests that we would be able to earn in excess of the property level returns, were set up to inure to the Fund. This structure effectively put all of the Fund investors in the role of General Partner. Normally, this scenario is structured a little differently with investors only earning a percentage of the carried interest. However, because we were using Fund equity as the General Partner capital, we felt that sending 100% of the carried interest to investors was the right thing to do. Considering the risk that the Pandemic has thrown into the market, we’re happy to have that structure in place and are optimistic that the returns will ultimately play out in a significantly positive way for our Fund.

As we approached the structure of our last deal, we started to consider the concept in a more meaningful way for future deals. Our research returned that the GP Co-Investment structure seemed very appealing for us as we continued to build our investment practice. We had just built out a new strategy for acquiring logistics based industrial in markets west of Denver and realized that we could lever our personal capital more effectively if we brought in GP-Co Investors in multiple deals. They would have the opportunity to earn a 10% piece of our carried interest effectively allowing the individual investor to earn greater returns than our institutional limited partners when measured against project-level returns.

Sometimes unexpected situations create opportunity. Not only did we develop a new and exciting investment strategy, but we were also able to create an investment structure that helped us address the requests of those who wanted to be General Partner in some of our deals. The thousands of hours, and hundreds of thousands of dollars invested in people and technology, along with a little entrepreneurship, helped us put our private investors one step ahead. We’ll still do all of the heavy lifting of course and continue to focus on enriching the lives of those we serve (whether they be GP’s or LP’s)!

Autumn Valencia is the Marketing Coordinator at Intersection, providing strategic marketing expertise to support business objectives across company divisions. For general and marketing inquiries, please contact Autumn at avalencia@intersectioncre.com 

written by
Kyle Clark

Freestanding Dairy Queen in Spring Texas is acquired with 19 years remaining on a 20 year, absolute NNN lease.

Intersection Senior Director, Kyle Clark represented the buyer in the sale of the freestanding drive-through Dairy Queen for $3,100,000. The 3,098 square-foot property is situated in a regional trade area, which has undergone a new wave of retail growth. Approximately 400,000 SF of retail has been added to the surrounding area within the last five years.

The design is the latest Dairy Queen prototype, with a larger format, reflecting the refined direction that the corporation has adopted following Warren Buffett’s acquisition of the brand. This location is currently outperforming the sales of other Dairy Queens in the Greater Houston area and is continually meeting and surpassing profit margins even throughout the COVID-19 indoor restaurant closures.

Mr. Clark was approached by the buyer’s family attorney to locate a suitable property to complete the buyer’s 1031-exchange, following the sale of their multi-family apartment project. The buyer’s goal was to shelter their substantial gain while relieving them of the daily property management tasks associated with a substantial apartment complex. Kyle was hyperfocused to find a property that would be truly passive and self-sufficient in ownership responsibilities that will also provide a reliable stream of income to sustain them for the remainder of their lifetimes. Eventually, the property will pass to the next generation of kin established through their family trust. Although the buyers are San Diego residents, the focus was on properties outside California to maximize the return with lower Cap-Rates. Following this sale, a second NNN property has been identified which will also be purchased by year-end to complete the exchange requirement.

For more information on this deal or if you’d like to discuss Intersection representation further, please reach out to Senior Director Kyle Clark at 619.997.9537 or kclark@intersectioncre.com

Autumn Valencia is the Marketing Coordinator at Intersection, providing strategic marketing expertise to support business objectives across company divisions. For general and marketing inquiries, please contact Autumn at avalencia@intersectioncre.com 

written by
Emily Bane

Intersection is pleased to announce the reopening of the Downtown San Diego office following the COVID-19 shutdowns with new guidelines and procedures to ensure worker and customer safety. These changes, designed to ease coronavirus concerns, range from the reconfiguration of office spaces to running daily temperature and health checks, to reducing customer contact. At this time, there will be no in-house meetings with clients through the end of June, with potential for extension.

Step by step, we’re seeing our local communities open up and the economy coming back to life. While we know this crisis is not over, we are continuing to educate our teams and clients, and are hopeful that we are moving in the right direction towards this long journey.

For more information on the precautionary measures we’re taking, please email info@intersectioncre.com.

Below are guidelines for property showings between Intersection team members and outside clients.

Showing Guidance During Reopening

As restrictions begin to ease around San Diego County, California, and the country, Intersection provides this guidance to assist brokers, managers, and clients in preparation for business in the new normal. Intersection continues to encourage brokers and managers to use virtual showings and limit in-person activity in all other aspects of the transaction as much as possible during the pendency of this crisis, even where in-person showings are allowable by state or local order.

Please review the following guidelines prior to your scheduled showing.

Intersection Property Showing Guidelines

  • If you are sick or exhibiting symptoms of COVID-19, you are required to stay home.
  • Adhere to social distancing recommendations and maintain a minimum of six feet of space between persons at all times.
  • Avoid shaking hands.
  • The number of persons who may attend a showing is limited to four total people, including Intersection brokers/managers.
  • All persons entering a property are required to wear a face mask or covering and wash their hands or use hand sanitizer upon entering.
  • Avoid touching any surfaces in the space, such as light switches, door handles, or walls.
  • Intersection does not recommend the use of bathroom facilities at the property.
  • Do not share phones, pens, or tablets or other personal property during the showing.
  • Intersection requires all documents to be shared electronically versus the distribution of paper documents at the property.
  • Use hand sanitizer upon returning to your vehicle.

We thank you for your patience and compliance with above guidelines.

Emily Bane is the Marketing Coordinator at Intersection, providing strategic marketing expertise to support business objectives across company divisions. Contact Emily at 619-819-8725 or ebane@intersectioncre.com

written by
Emily Bane

Intersection earned the AMO® (Accredited Management Organization) accreditation from IREM (Institute of Real Estate Management). Intersection joins an exclusive group of nearly 600 real estate management companies world-wide, and an exclusive list of 17 companies in San Diego that have met the requirements to earn this distinction. 

AMOs demonstrate strong financial performance, outstanding leadership, and adhere to a Code of Professional Ethics strictly enforced by IREM to maintain integrity beyond reproach. Accreditation as an AMO requires firms to follow best practices in real estate management, demonstrating that they meet standards and functions related to operations and service. Property owners can be assured that an AMO will put their interests first.

“We have always been very focused on the value that real estate management can create for our clients and investors,” said Mark Hoekstra, Managing Director and Partner with Intersection, “The AMO accreditation affirms our commitment to providing the highest level of service in concert with our key company driver, integrity.” 

“The AMO accreditation sets the standard in property management excellence for firms of all sizes. Our AMOs lead the industry in conduct and unmatched client service,” says Chip Watts, CPM®, CCIM, IREM President-Elect, and President of Watts Realty Co., Inc., AMO®. “We congratulate Intersection on this accomplishment, and welcome them into this exclusive group of property management firms.”

For more information about the recent accreditation, arrange an interview with Mark Hoekstra, Executive CPM®, at mhoekstra@intersectioncre.com or 619-819-6114.

From left to right: Mark Hoekstra, Rounak Mofty, Orquid Schon, and Bryan Calhoun attend the AMO Luncheon in January 2020.

Emily Bane is the Marketing Coordinator at Intersection, providing strategic marketing expertise to support business objectives across company divisions. Contact Emily at 619-819-8725 or ebane@intersectioncre.com

written by
Emily Bane

Ideal Location For Tech Company Within Vista Industrial Park

Intersection Senior Director, Henry Zahner represented the seller in the sale of the freestanding industrial building for $1,685,760. The 8,780 square-foot property consists of office and warehouse space, most of which has undergone recent renovations.

The single-story facility was previously headquarters to ICP America, owned and operated by the seller, Puglisi Family Trust. Today, the facility located at 1070 Joshua Way, Vista, CA 92081, is the future home to Techmaster Electronics, a global leader in electronic test equipment calibration services. The buyer, Celtic Blue, LLC (aka Techmaster Electronics), was represented by Dave Steffy of Palomar Commercial.

The property’s location within the Vista Industrial Park of North County is ideal for the buyer who services clients all over Southern California, as well as nationwide. The central location between Orange County and San Diego is reputable for its diverse and strong economic region.

For more information on this deal or if you’d like to discuss Intersection representation further, please reach out to Henry Zahner at 760-889-7943 or hzahner@intersectioncre.com.

Emily Bane is the Marketing Coordinator at Intersection, providing strategic marketing expertise to support business objectives across company divisions. Contact Emily at 619-819-8725 or ebane@intersectioncre.com

written by
Rocco Cortese

COVID-19: Redefining Our Why

At Intersection, we play dual roles as Property Manager and Asset Manager for the portfolio of properties we manage. Our funds own four properties and we have a very important role as stewards for our investors. However, we also have an equally important role as service provider to our third-party clients. Whether an owner or a manager, COVID-19 has challenged us in ways we could not have imagined.

Back in February, when COVID-19 was peaking in China, we realized that we needed to be prepared for the eventuality that it would find its way to the United States. So, we began the process of evaluating and creating an emergency plan should our people need to work from home. Fortunately, we became a paperless company three-years ago, and have been supplying each of our employees with laptop computers since their onboarding. With this, Intersection was already equipped to make the transition from working in office to working remote. Three weeks from that initial discussion with COVID-19 cases multiplying rapidly, we offered our entire work force voluntary work from home status. Another week later, on March 19th, California mandated shelter in place and only essential businesses could remain open. Other than a core team of people, our entire work force was working remotely. Things can happen fast, but usually not this fast!

It is now April 13th, and we are in a different world from where we were in February. I joke that each day feels like a dog year because so much changes in 24 hours. Our team is working almost seamlessly from home, and our owned and managed properties are operating efficiently. The effort we put into our planning, technology, and in the quality of the people in our organization allowed us to adapt this incredible change.

The story does not end there. In the past few weeks the real work has begun as we deal with several tenants whose businesses have been literally shut down. How can you pay the mortgage and operating expenses when your property depends on rent from businesses that have been forced to close? Even though we were getting our jobs done each day, we had to figure out ways to help our clients and investors maintain  the value of their investments.

We were equally concerned about our own business. Intersection is a small business and a crisis like this one would certainly impact us as well. As such, we closely monitored stimulus activities instituted by the Federal Government. The $2.3 trillion Coronavirus Aid, Relief and Economic Security act (CARES) includes $349 billion in forgivable loans for small businesses to support payroll, rent and cover certain utility expenses. This is the Payroll Protection Provision (PPP) of the act that is focused upon supporting small businesses. This program would be a key element of our company’s plan to retain people and address major corporate expenses over the next few months.

However, the process of applying for PPP was not simple.  I am so grateful that we have the systems and team to compile the information needed for our lender as we prepared our application.  Through our own application for PPP, we realized that less sophisticated tenants could find the application process challenging. We learned that it is also important to have a banking relationship that has the ability to do SBA loans in order to participate. Many of our tenants who have been shut down did not have these banking relationships nor the resources to get the help they needed. Our unique insight as a small business inspired the empathy to help. Furthermore, we knew our experience could make a difference.

Our team mobilized quickly and put together a COVID-19 Tenant Resource Guide which lists all resources available to our small business tenants (Disaster Relief Direct from the SBA in addition to CARES PPP and other local resources). The two-page package is both simple and useful, and our efforts have not ended there. We have dedicated a team to become experts on CARES PPP and have built a proprietary list of banking relationships that are ready to help.  Although April has been a tough month, we have actually collected more rent than expected. But with so many of our tenants closed for business, we know that May is going to be our most difficult month.  Our CARES team has already put a number of our tenants in touch with SBA lenders and hopefully many of them will get inexpensive, forgivable financing to keep their businesses alive while paying rent, and retaining valuable employees.

It is really difficult to understand what the world will look like when we start to get back to work and social gatherings are allowed again. We can’t control when that will happen, but we can control what we do each day to enhance the lives of those we serve. COVID-19 and the social distancing measures taken to defeat it will never be forgotten. At Intersection, we will remember this point in time when being a small business was a competitive advantage. Our passion for the small businesses that make up our portfolio runs deep and the impact of our values as we support our tenants will be a proud moment in our company’s history. When it is all over and we are in our new normal, our values won’t have changed and the measures we have taken will be remembered. Hopefully, the relationships we care so very much about will be even stronger.

Stay healthy.

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