Case Studies

 

Hospitality Case Study

Hilton Garden Inn, Arlington, VA

Capitalization

Debt: $37,700,000
Equity: $14,200,000
Total: $51,900,000

IRR

16% (leveraged equity return)

 

Purchased as an income-producing asset in late 2006 for $52,000,000, consistent with Northridge strategy to create value by targeting assets in high-barrier to entry markets with exceptional near-term cash flow potential and long-term capital appreciation.  While collecting substantial positive cash-flows throughout the holding period, due to the continued strength of the Washington DC market through the 2008 financial crisis and its aftermath, Northridge and our investor were able to benefit from the strong institutional interest in well-located, stable cash-flowing assets during the years following the 2008 crisis.  In March 2011, a profitable sale to an institutional buyer was completed, exceeding targeted IRR despite the difficult time period in which funds were invested.  The sale was timed such that the new owners would be responsible for near-term capital expenditures required to maintain the hotel’s brand, thus enhancing investor returns.


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Office Case Study

Figueroa Plaza I & II, Los Angeles, CA

Initial Capitalization

Debt: $69,750,000
Equity: $26,350,000
Total: $96,100,000

IRR

71% (leveraged equity return)

 

When Northridge Capital purchased Figueroa Plaza, the investment represented an opportunity to acquire a significant downtown Los Angeles office complex (615,000 sf) with the potential to achieve attractive leveraged cash-on-cash returns and substantial leveraged total returns as below market leases rolled to market rates. At acquisition, the property was 98% leased to governmental and private sector firms. The acquisition price represented a 50% discount to replacement cost. Thus, it was unlikely that the supply of office space would increase until there was a substantial increase in rents in the downtown Los Angeles office market.

Northridge financed the acquisition using mortgage proceeds from a major New York merchant bank and equity capital contributed by a group of investors assembled by Northridge. The venture was structured as a 4-5 year hold, with disposition anticipated in 2006/07 and stable cash flows to investors during the holding period, giving Northridge ample time to re-structure the major tenancies to market rents.  In light of favorable market conditions, however, Northridge and its investors decided to accelerate disposition, bringing the asset back to the market in 2004 and, after quick execution of a broad marketing and sale strategy, re-selling the asset for $133,000,000 and successfully achieving extraordinary returns for the investors.


 

Turn-Around Case Study

Westward Look Resort, Tucson, AZ

Initial Capitalization

Debt: $14,000,000
Equity: $11,841,380
Total: $25,841,380  

IRR

2% (vs. total loss of invested capital prior to turn-around)

 

A client of Northridge Capital acquired a significant interest in the historic Westward Look Resort in a partnership with several other investors sponsored by a major multinational bank in September 2000. The initial strategy was to improve operations through the addition of a ballroom/conference area, select guestroom upgrades and updating of the resort's amenity package. Within a few years after closing, execution of strategy went off track due to defection of principals in the bank-approved operator, cost overruns in the capital plan, and lack of hands-on oversight of the operator's manager.

At the request of its client, Northridge in 2004 became the new managing member, with the support of the other investors and subject to resolution of litigation among investors, the operator and the manager. At the time we became managing member, the investors' equity was valued at zero. After terminating existing management and settling the lawsuit that arose from the termination, Northridge hired new resort management and worked closely with them in restructuring operations, personnel and budgets.  We completed the capital program, added new spa facilities and refinanced the hotel with a lender which was an existing strategic partner of Northridge. Net income improved dramatically and in 2006 we successfully sold the hotel for $31,000,000, enough to return all members' capital plus a small positive return.


 

Residential Case Study

Azure Creek at Tatum Ranch, Phoenix, AZ

Initial Capitalization

Debt: $9,459,000
Equity: $4,800,000
Total: $14,259,000

IRR

209% (leveraged equity return)

 

Northridge Capital acquired Azure Creek at Tatum Ranch in 2005.  Given the quality of the project, its recent construction and location in the exclusive Tatum Ranch neighborhood, Azure Creek was originally intended to be a long-term investment with steady annual cash flow projections and the added potential to achieve considerable long-term appreciation. However, while these attributes made the investment appealing from a long-term perspective, they also made the property an exceptional candidate for  condominium conversion.  After holding the property for exactly a year, Northridge took advantage of the heated market for condominiums and sold Azure Creek to a condominium converter, achieving significant returns for investors in a finite time frame.  

Northridge financed the purchase of Azure Creek by assuming an existing above market mortgage.  The sale of the asset was carefully planned, limiting tax exposure to investors while achieving top-of-the-market pricing.