What is the most clever, profitable RE deal you've witnessed?

Bump... C'mon guys, I know you have some good ones :D

I don't know how profitable it was but I can tell you one of my favorites which I often point to as a text book adaptive reuse / mixed use development is the American Tabaco Campus in Durham NC. which was an old lucky strike factory in the heart of NC's Tabaco country, redeveloped into MF, retail, office complex while keeping the character of the old factory (the lucky strike water tower and old cogen plant are still there).

Anyways its pretty neat considering its not in the middle of a large city.

The Wang Computer building in Lowell MA. In the early 90's Wang went bk and left the building which was over 1MM sf. A group of Boston guys bought it for something like $500k, got the city of Lowell to give it tax breaks and the city signed for a few million dollar line of credit to rehab it. They leased it up and sold it a few years later for ~$100MM.

Related building a whole neighborhood over the train tracks in Manhattan is pretty ballsy.

But, as far as someone I've actually met, I know a REIT that buys property from hospitals (a lot of times whatever real estate the hospitals own outside of the core building) and then immediately leases it back to them. The hospital gets cash and the REIT gets steady rental income and an obvious tenant. Pretty brilliant if you ask me.

A piece of property in Ocean City, MD adjacent to the water had a deed restriction placed on it in the 1960s that restricted the property’s use to a squash club. The then-current owner (this is 2012) put the property up for sale, a hotel developer went under contract for the property for something like $1 million, tracked down the last living relative of the individual who placed the deed restriction on the property, paid the guy, like, $500,000 to remove the restriction, which was accomplished within the 90 day settlement period, and the then-unrestricted land appraised for something like $8 or $10 million. Immediately upon settlement, the new owners put the land up for re-sale. I pretty much wanted to kill myself when I saw how easy this was for them.

Hah, on the other side, I also know one of the developers of Pittsburgh Mills mall. While he got out at the right time financially, and to his credit it IS a gorgeous mall, there are barely any stores there now and the mall is leasing most of its space to a community college, a karate studio, a church, etc. Malls, man. Unless they're super high end, I wouldn't touch them with a 10 foot pole.

This is great. I'm somewhat of a newbie but definitely hope to share some in the future!

My first deal at age 21 i bought a piece of land for 10k and flipped it for 32k in a few months. I thought that was clever

Any and all creative financing stories are welcome too... Although, you guys may not have as many since obviously your clients and contacts were most likely seeking traditional/institutional capital

Uhhhh... Why did someone throw monkey crap at me? What's wrong with my suggestion?!

Anyway... I remembered a couple of stories:

1. Creative financing deal: a developer in the Los Angeles area wanted to purchase a property with a certain price in mind to take to lenders. The seller wouldn't come down on his price at all, and just seemed too expensive. However, after crunching the numbers, the developer realized that if he gave the seller the price he wanted, but did seller financing and negotiated a very LOW interest rate ( that's the key here), the total cost would actually be lower than if he had purhased the property at a lower price and put a traditional loan on the property with a higher interest rate. Pretty clever.

2. Another one that I heard about was the acquisition and repositioning of a struggling mall during the recession. At the time, most malls took a huge hit, but the Hispanic population in this particular area was growing rapidly ( the mall is located in Texas). So, basically, the landlord shifted his target market and turned it into this huge Hispanic mall and supermarket. He subdivided the space into smaller units, so that space was more affordable for the tenants leasing out space, but because the target market was so big and their were so many merchants, the significantly increased occupancy, and they ended up making more money than they would have leasing bigger units of space out to other types of tenants. The mall thrived. I thought this was a particularly clever strategy because it's a prime example that sometimes you don't even have to change the property itself if you just change your market audience.

one of my favorites is costar buying the mortage bankers association building for like $40mm. The mortgage bankers were underwater and sold the building in 2010 at about 50% what they paid for it in 2008. Costar then proceeded to turn around and flip out of the building in a year for $101mm to a german pension advisor on a 15-year nnn sale-lease back. i believe costar won deal of the year back to back years in the local business journal.

Forbes just put out an article on Donald Trump's net worth that discusses valuations of some of his real estate holdings. Supposedly, a 200 year leasehold he acquired on a Manhattan property in 1995 for $10M is worth $550M today. Pretty fucking sweet deal if you ask me.

Macklowe - The glass Apple store at the GM Building - BOOM, embarrassed Trump and now there is going to be a movie made about it. Shocked that no one mentioned that.

On that same topic, the Hancock Tower in Boston was a very interesting and profitable venture for Boston Properties.

This one definitely takes the cake: http://www.ocregister.com/articles/bren-364770-kbs-irvine.html

Donald (Irvine Co.) and Peter (KBS Realty) Bren pulled a fast one on some office product they picked up from Equity Office/Blackstone. Classic case of brotherly love. Here's a brief overview below:

February 2007: Blackstone Group buys Equity Office Properties, owner of 590 properties – including Northern Trust Tower – for $23 billion.

April 2007: Orange County real estate giant Irvine Co. buys 17 buildings from Blackstone Group – including Northern Trust Tower.

December 2008: KBS Trust II of Newport Beach buys Northern Trust Tower “A” Note from Bank of America – essentially, the $95 million first mortgage – for $58 million.

June 2012: KBS Trust II buys Northern Trust Tower “B” Note – essentially, a $10 million second mortgage –from U.S. Bank for $2 million.

June 2012: KBS Trust II sells “A” and “B” notes to entity linked to Irvine Co. for $85 million.

The delight:

• Peter's investment fund says it ended up with an "economic gain" for KBS of $25 million above its investment costs (or, a $15 million profit when seen for accounting purposes) for its three-plus years of ownership of the tower's mortgage.

• And Donald? His empire ends up acquiring $105 million in debts on one of his buildings for $85 million.

Win-win!

A group of small-time developers in my area noticed that one of the area public school districts was stretched severely thin on classroom space--a lot of schools in the area using portable classrooms, larger class sizes to try and manage the number of students without spending a lot of money on new construction. These guys bought what most investors consider functionally obsolete office buildings at incredibly low valuations reflecting high vacancy and weak demand in these areas for office tenants. Think 1970s-construction suburban office product with poor public transportation accessibility that a lot of investors would think had higher land value with no improvements. The group got a construction lender to fund improvements to build out very basic classroom infrastructure. They then leased the buildings and sold them stabilized for a ridiculous profit. Thought it was a really creative way to think about adaptive reuse.

I worked for a guy who owned a roughly 15K sf property in a partnership (vacant grocery store in now one of the hottest neighborhoods in San Francisco). During the Great Recession, the other partners bailed and my boss and I tried to save the property. It was entitled for roughly 50 condo units, but there was a prolonged capital crunch on a non-cash flowing asset. The lender did some "extend and pretend" with us until someone came along and bought the note for roughly $3M, and then commenced foreclosure on us. We lawyered up and declared chapter 11.

In the 6 month CH 11 fight, I was able to fully tenant the building; however, there were some issues with getting permits and completing TI which would take another 6 months. Judge ruled in favor of the plaintiff and took over the property. In the end, the tenants I signed became wildly successful when they took occupancy 6 months later. The market improved. San Francisco per unit land prices went from $60K/door to over $150K/door in the span of 4 years (2010-2014). We pretty much gift wrapped this deal, and this reminds me how fortunes are made and lost. The opportunity costs of a downturn can be life changing. Also, having big money comes with big responsibilities. Easy come, easy go. And asset rich, cash poor can be very bad. There can be a euphoria of becoming rich that clouds your judgement.

One guy told me a very interesting piece of advice. Have one or two of your best located, highest rated assets completely debt-free. When the next credit crisis hits, you have the option of refi'ing you're best asset and getting cash, because there will be a flight to quality and some financing activity.

Two stories involving eminent domain that I heard this past weekend. The first they didn't do anything to earn it they just got lucky as shit. They owned a building with a bunch of crap in it, basically a storage building. However, this crap happened to fit the definition for an "office building" so they got the market price for an office building, instead of a storage shed, when the government bought it to make room for a new lane on the highway. 150k. Turns out the only portion that would be affected was a porch attached to the building. So, they bought the building back for 20k, and they cut off the porch. So, they are still using that building, and they reinvested the money (to avoid taxes) in a house where the son stays so that he isn't wasting money on rent.

The second involves Lindsey Graham, according to the person who told me about the first story. He bought some acres before the process began, got paid the eminent domain price for the land. and then rebought the land with the same kind of discount. Shady to say the least considering his position.

Moral of the story is that eminent domain can be a pretty sweet deal sometimes.

Pretty cool stories, I love this stuff.

http://www.marketwatch.com/story/american-realty-capital-properties-clo…

This

Golden Gate buys Red Lobster from Darden at an undervalued price ($2.1bn), levered up for the purchase. Then sold 500 units to American Realty Capital for $1.5bn thus getting ride of most of the leverage and now owns the asset that is Red Lobster.

Win for Golden Gate

Hudson Bay's acquisition of Saks for a $2.9B enterprise value, and then the subsequent appraisal of Saks' Manhattan property one year later for $3.7B. Not to mention there's still a bunch of value in the rest of the Saks real-estate portfolio.

There are plenty of stories, but I recall one that was pretty much luck. I can't remember the bank, but it was in Southeast and they had a ton of branches. It was basically a community bank that was going under. This was during the peak of the 09 recession. The bank announced it was closing and shutting down all branches so the in place lease was useless. A guy ended up buying like 4 branches for like $1.5 million. He was actually planning on growing his existing business which was a chain of tire shops. I think he planned on knocking them down and since the locations were good he would build on them. Anyways he was waiting for the bank to exit and turns out it go bought out by a too big to fail bank that continued its lease. So this guy now had $1.5 million of bank branches and the lease value went through the roof once the government announced TARP. Cap rate fell substantially and he ended up selling for like $7 million three years later.This guy benefited because he was already successful and had good banking relationships that lent t o him during the worst part of the recession. I went to school with his nephew so I found out.

Oh, here's a time when the principal of my organization got screwed by McDonald's. He ground leased a property to McDonald's for, like, 25 years with a purchase option at the end. The annual escalator was something like 3%. Well, land values in this area rose at a rate of about 4%, so McDonald's exercised its option at the end of the ground lease and bought the land for about 25-30% below market. Our principal was FURIOUS!

Bump

low-OH hotels (think hampton inn, holiday inn etc) - cash cows

Anyone ever see high school prep boarding school campuses trade? I've seen some nice NNN yields on those with upside building development opportunities on campuses (additional teacher offices/classrooms/dorms). Need AA credit tenant and need to come to grips with a modest residual cap rate due to the lack of a "back up plan" in case 30 years from now the school defaults or leaves. I see these for internationals schools in US and western Europe. Cool stuff.

Any Real Estate deal with a New Markets Tax Credits component in the capital stack is interesting and pretty complex.

Either Vulcan (Paul Allen's Co.) acquisition of raw land in Seattle/South Lake Union 10+ years ago and the foresight to see that area develop in terms of office / multi-family needs (11M sf). Or...Talon's acquisition of the Walton Street west coast portfolio (debt default )for $0.20-0.30/$1.00 during the 2008 crisis - they've sold some of the properties but most have rent rolls that have increased 200-300% over the past 10yrs.

Hudson Bay Company bought Saks Fifth Avenue for $2.9bn and monetized some real estate. Most notably their flagship NYC store.

If I understand this correctly, their prop-co signed a ground-lease with their op-co for their flagship NYC store. They refinanced the property shortly after for $1.25bn (it appraised for $3.7bn).

https://www.businesswire.com/news/home/20141124005200/en/Hudson%E2%80%9…

Bump bump bump. Love reading these. Let's keep this thread alive.

I always thought Trump Tower had a cool backstory. Equitable initially refused to sell the land to Trump, so he bought their ground lease instead and Equitable donated the land in return for a 50% stake in the construction project itself. Then there was the task of assembling various air rights, a rezoning battle with the city, etc....