Case Studies

Portfolio Purchase:

Portfolio Purchase – Santa Cruz County Portfolio owner

Description – The owner of a Santa Cruz County Portfolio had 18 assets that included single family residential, multi-family, and commercial. The owner was also the original developer of the assets. The owner’s original plan was to give each of their children a set of assets as their inheritance. However, the parents realized that their children didn’t want the responsibility of owning and managing assets, but wanted passive income.

The owner ultimately wanted to buy a Walmart Grocery store and a Rite Aid, but they knew they couldn’t do that by selling 18 individual properties. They were planning to sell 3-4 assets at a time, own 3-4 NNN assets and then sell those NNN assets and buy a Walmart Grocery story and Rite Aid. Their plan included 32 separate transactions. By buying the portfolio, we reduce the number of transactions to 3.

The Remaining Partner’s goals:

  • Buy passive income assets (Walmart Grocery store and Rite Aid)
  • Reduce the number of transactions
  • Find a portfolio buyer who would buy a SFR, multi-family, and commercial assets
  • Have flexibility and time to find the right 1031 exchange upleg transactions

There were several steps to purchase this portfolio:

  • Step 1: Rutherford provided the seller with a Put Option which required that Rutherford close on the portfolio within 30 days of notice; the seller had 5 months to exercise the Put Option
  • Step 2: Seller exercised his Put Option within the 5 month period
  • Step 3: Rutherford purchased the portfolio
  • Step 4: Seller purchased a Walmart Grocery store and Rite Aid; this reduced the number of transactions from 32 to 3 for the Seller for him to complete his ultimate plan and goal.
No. of Properties: 18 2
No. of Potential Transactions to complete trade: 32 3
Property Type: SFR, Multi-Family, Commercial Walmart, Rite-Aid Pharmacy
Property Age: 20-30 years Brand New
Debt: Minimal 15 Year Self-Amortizing
Pre-Tax Cash Flow: $429,000 ~$444,000
Post-Tax Cash Flow: $230,000 ~$444,000
Management: Hands-on management No management
Maintenance: Significant deferred maintenance No maintenance(triple-net lease)
Depreciation: No more depreciation New depreciation schedule
Other: Much effort to coordinate disposition of assets Estate planning goals for long-term owners met