This four-storey, 30,000 sq ft office investment was purchased on behalf of clients in 2007. In approaching the 2011 lease expiry, Hallmark’s team negotiated a lease renewal for an additional 10 years, with break options in 2014 and 2016.
Strong Relationship with Bank Pays Off
Hallmark had earned the lender’s trust and confidence after achieving a 10-year lease renewal. Nevertheless, the bank wrote down its internal book value on the property in 2015, due to the tenant’s imminent option to determine its lease in 2016. Having established a strong working relationship with Hallmark, the lender first sought an offer for the property directly from Hallmark, rather than placing it on the national market.
Hallmark’s team utilised their knowledge of the property and its tenant to formulate a winning strategy for the asset, including an acceptable purchase price to offer the lender. As a result, Hallmark entered negotiations with the lender and ultimately agreed a purchase price, arguably below-market value.
Knowledge Turns to Strategy
Whereas the lender perceived a potential break emerging, Hallmark’s asset management team undertook a robust risk assessment based on in-depth research and inquiries; their research uncovered three key facts on the ground that painted a different picture.
Firstly, because Hallmark’s team closely monitors their portfolio, they learned that the tenant of this property recently exercised a break on its adjacent office and quietly begun absorbing staff from the adjacent location into this remaining office block.
Secondly, after interviewing contacts familiar with the tenant, Hallmark's market influence led them to assess a strong likelihood that this national tenant needed to maintain a presence in the local area, making the prospect of a break on this remaining office even less likely.
Thirdly, a final piece of evidence against the tenant’s potential 2015 break finalised Hallmark’s strategic approach in repurchasing this property. In 2015, the tenant had initiated an expensive capital investment program at their own expense, refurbishing the office’s air conditioning system with high-end national contractors.
When considered together, these combined facts gave sufficient comfort that the tenant would likely remain at the property in 2016. In addition, Hallmark held a secure fallback plan following a detailed analysis of this prime location, its high tenant-demand and potential for redevelopment.
Strategy Turns to Profit
In line with Hallmark’s business intelligence, the tenant did not exercise its termination option. Hallmark subsequently sold the asset within 18 months from point of purchase, returning both the original and new capital to clients, along with a substantial profit.
Case in Point
This successful project was set in motion on account of Hallmark’s track record of performance and reliability with the lender. When faced with this opportunity, Hallmark’s hands-on micromanagement and extensive network of contacts collected the business intelligence through which this profitable strategy was executed.