Case Studies.Strategic Repositioning of Existing Properties
Amazon Delivery Station.
Peakstone’s existing relationships, vision, and redevelopment expertise generated significant value accretion through a strategic R&D-to-warehouse conversion which resulted in credit and lease term enhancement and required no incremental capital investment.
Amazon Delivery Station – Arlington Heights, IL
Single-Tenant Last Mile Warehouse
- Challenge: This single-tenant R&D property was acquired in August 2013. At acquisition, the property was 100% leased to Nokia Siemens Networks US, LLC (“NSN”) pursuant to a 12-year lease. The building was one of the two U.S. R&D facilities where NSN developed LTE technology. The criteria that drove our decision to acquire the property included the property’s above-standard parking ratio, low site coverage, in-place R&D infrastructure, and NSN’s considerable capital investment in the building – all of which would appeal to a variety of tenants in the market and provide future optionality for value creation.
- In April 2015, Nokia announced its intention to acquire Alcatel-Lucent, and the acquisition was completed in November 2016. Despite NSN’s long-term lease and significant investment in the property, it elected to consolidate operations into another property in the Chicago area. NSN physically vacated the property in December 2017 with 7.5 years of remaining lease term, but it continued to fulfill its rental obligations while it attempted to sublease the property.
- Resolution: Peakstone believed rent recovery from NSN and the value of the property would be maximized by proactively negotiating an early termination with NSN conditioned upon securing a replacement tenant and possibly converting the property from R&D to last-mile infill industrial use.
- Peakstone had experience responding to RFP’s for Amazon’s new delivery station requirements and determined the property met Amazon’s criteria. Peakstone’s existing relationship with Amazon enabled it to reach out directly to Amazon’s real estate group and broker to implement a targeted marketing effort to secure Amazon as a full-building tenant.
- In April 2020, Amazon signed a new 10-year lease for the entire building commencing July 2020. In order to meet Amazon’s space delivery deadline, Peakstone simultaneously finalized an early termination of the NSN lease which, at that time, had five years of remaining term. Peakstone was able to terminate NSN’s lease to allow for no downtime, and Peakstone collected a termination fee from NSN that was approximately $5 million greater than the amounts required to fund base building, interior, and exterior improvements for the Amazon lease. The tenant credit profile improved from a sub-investment-grade rating to an investment-grade rating of “AA” by S&P.
- Peakstone’s existing relationships, vision, and redevelopment expertise generated significant value accretion through a strategic R&D-to-warehouse conversion, which resulted in credit and lease term enhancement, required no incremental capital investment, and increased the rental rate per square foot by 6.4% over NSN’s rental rate per square foot at lease termination.