Best Real Estate Transaction: Distressed Property
- June 28, 2012
Mark E. Douglas, Senior vice president, Cushman & Wakefield|Thalhimer
DRV LLC and Markel/Eagle, Joint venture equity partner
C-III Asset Management. Special servicer
After electronics retailer Circuit City Stores Inc. went bankrupt in 2008, its former six-story headquarters on Mayland Drive sat empty. With a prime location off West Broad Street at Interstate 64 and within a stone’s throw of hotels, restaurants and other amenities, the region’s largest single block of office space — 382,570 square feet — attracted interest from buyers. The problem? Obtaining financing on a vacant building. The incentive? The ability to pick up a former Fortune 500 headquarters at a fraction of its appraised price of $52 million.
Douglas called Spilman Short, a principal with DRV (Diversified Realty Ventures) LLC, a private real estate investment firm with offices in Richmond and Bethesda, and said, “I’ve got the deal of the century.” He worked with the building’s listing broker firm, CBRE, and the special servicer, since the building had been returned to its lender. Financing was a challenge, yet Douglas said interest from DRV LLC helped pull in a joint-venture equity partner, Markel/Eagle, a private, Richmond-based equity firm.
According to Short, the partners got the building and 18 acres in the Deep Run Office Park for $12.5 million or about $33 per square foot. “We think the price was very good considering that the building was assessed at $52 million three and a half years ago,” he said.
Today, the partners have embarked on a renovation expected to cost as much as $10 million to $12 million with updates to the building’s bathrooms, the lobby and common areas. They’re also investing in a new weight room, showers and lockers and external landscaping. Douglas is marketing the building for multitenants and says interest is strong. “No signed deals yet, but very strong activity,” he says. “We’ve got prospects ranging from 25,000 square feet to 130,000 square feet … with interest ranging from corporate users, headquarters, regional offices and data and call centers,” he added.
Deep Run I, the second of Circuit City’s headquarters buildings, which was purchased by another Richmond company, did attract a major tenant last year when Allianz Global Assistance USA (formerly Mondial Assistance), decided to lease four of its five floors for its headquarters location.
What made it stand out
The commitment by local investors to take a risk on a huge, empty building and complicated contract negotiations which weighed risks against possible rewards. “The numbers had to work,” recalls Douglas. “It took a breath out of the Richmond economy when Circuit City closed down. Now we have the opportunity to bring some life back to the project through this redevelopment.”