Falcon Sells Shopping Center in Seattle, Washington
DISPOSITION
Falcon Sells Shopping Center in Seattle, Washington
As part of the continuing review of all of the properties for which it provides asset management, Falcon Real Estate always considers whether or not a property should continue to be held. Falcon recommended to its clients that the Woodinville Shopping Center in suburban Seattle, Washington be sold.
The property had been purchased by Falcon in February 1996 on behalf of a group of U.S. and overseas investors. The property was purchased from a real estate fund that was in liquidation at a total price of $10.1 million. A $9 million mortgage from Allstate Insurance Company was in place at the time of purchase and this mortgage was assumed by the purchasing group.
Falcon immediately instituted a program to upgrade the center and also began a more aggressive leasing effort. Previous ownership had been unwilling to invest in the center either for physical improvements or for new leasing. With new management in place, occupancy quickly rose to the 95% area and Falcon was also able to replace the anchor tenant with a new, higher-quality food chain. As a result, a new $12.8 million mortgage was secured in 1999, completely repaying the original equity investment and providing a significant capital gain to the investing group.
Over the next five years the net income from the Center continued to improve but by 2004 Falcon’s analysis of the local retail market caused us to recommend to ownership that the Center be sold. When that recommendation was approved, we then interviewed a number of the premier retail brokers in the Seattle metropolitan area and selected one of these firms to actively market the property. As a result, several purchase offers were received and the property was sold at a price of $18.5 million. The internal rate of return was extraordinarily high in this case, with capital appreciation alone averaging over 40% per year. Because of the very large capital gains taxes that might have been incurred, the investors elected to reinvest the sale proceeds under the provisions of Section 1031 of the U.S. income tax code. Since the proceeds are being reinvested in another property, no capital gains taxes will be incurred at this time.