Commercial Investment Real Estate March/April 2013 - Page 29

Deals and Steals A cardinal rule for distress investors is to choose locations care- fully, says Tom Dermody, CCIM, owner of Tom Dermody LLC in Colorado Springs, Colo. “You can never f x the location, but if you have a good location, then you have something to work with,” he says. “T en there needs to be enough vacancy for me to create some upside as an investor.” Dermody’s third rule is to avoid buying properties with problems beyond his ability to f x. Last July, Dermody used those criteria to buy Parker Plaza, a 34,000-sf shopping center in the af uent Denver suburb of Parker, Colo. Due in part to a low occupancy rate of 64 percent, Dermody paid a little more than $2 million, or $59 psf, in a seller-carry trans- action in which the seller provided an undisclosed amount of f nancing. T e purchase price equates to about 40 percent of replacement cost, Dermody estimates. Less than a year later, Dermody has given the property a facelif , inked four new leases, and renewed other leases to bring occu- pancy to 82 percent. In the process, he has converted the entire cen- ter to triple-net leases, in which tenants assume responsibility for their own maintenance and operating expense, thereby boosting the owner’s cash f ow. Despite the shift to higher rental rates and the expense of a new roof, parking lot, and landscaping, Der- mody’s low acquisition cost has enabled him to of er rents below those at nearby properties. “T at puts me at a pretty good competitive advantage,” he says. Like Latshaw in Atlanta, Dermody was able to build upon recovering f u nda menta ls in a resilient secondary March | April | 2013 27