RealtyMogul Asset Management: Expect the Unexpected
Commercial Real Estate
RealtyMogul is a full service, cradle to grave real estate investment management firm. This means our team of originators source investments in potential cash flowing commercial real estate across the country from qualified sponsors, that are then underwritten and approved by a thorough vetting process, including our investment committee and external broker dealer. These approved investments are then offered by RealtyMogul licensed registered representatives through the sale of shares in private placements to our accredited investor community, and through our real estate investment trusts (“REITs”) to our accredited and non-accredited investors.
Once an investment is made, it is transitioned internally to a RealtyMogul asset manager, who takes on the task of working closely with the sponsors throughout the hold period to support adherence and execution of the business plan and to communicate all updates and changes to investors until the asset’s sale or portfolio conclusion. Why does this all matter? The following is just one example of how an investment made didn’t go according to plan, and how our asset management team provides value to our investors every day.
The West Chester Investment
In October of 2016, RealtyMogul’s originators sourced a preferred equity investment in a 111,451 square foot office/warehouse/production center in West Chester, Pennsylvania (“The West Chester Investment”).
One of the Risks: The property was 100% occupied by a single tenant, Animas Corporation (“Animas”).
Mitigating Factors: The tenant, Animas, was acquired by Johnson & Johnson in 2006 for $500M. The lease in place was through 2021 under triple net lease terms, meaning the tenant pays rent and all taxes, insurance and maintenance of the building. RealtyMogul, aware of the risk of a single tenant transaction, obtained fully amortizing terms, meaning each payment included interest and principal and the investment would be paid off in full, including interest, by the end of the lease term. Under these terms, RealtyMogul addressed the possibility of the tenant not renewing their lease in 2021.
The Problem Arises: In 2018 Animas decided to close their facility and vacate The West Chester Property.
Resolution: RealtyMogul’s asset management team communicated with the borrower to learn that Animas had given notice of its intent to vacate. Together, RealtyMogul’s team and the borrower put together a plan of options: (1) to re-tenant the property; (2) negotiate a payoff with the tenant; (3) work with Johnson & Johnson to continue to receive payments per the lease terms. When Animas offered a termination penalty payoff, the RealtyMogul asset management team had to work with the senior lender to get approval to receive payment of remaining principal and interest payments. The senior lender was under no obligation to permit RealtyMogul’s investors to receive a payoff, as the senior loan has a priority position.
Without RealtyMogul’s asset management team advocating and negotiating on behalf of investors, the outcome of the investment in The West Chester Property may have been different. While all investing in real estate is speculative, and nobody knows what future events may occur that may impact a property both positively or negatively, some risks can be mitigated by properly structuring the investment early on and having an active and attentive asset management team that works hard to make sure investors interests are being addressed. Our team always puts investor protection first, and we are pleased to report that the outcome of The West Chester Property investment was benefited by the time and efforts of our asset management team.