Cascade Engineering Case Study

The Challenge

A long vacant retail grocery building, where retail was no longer a viable use. The owner lived next door to the property and did not want certain uses. Furthermore, she did not want to sell the property. Find an acceptable use and user for the property, which would give the owner a reasonable return on equity

The Strategy

After finding a financially stable office user acceptable to the owner, the new user and owner formed an LLC to effect significant tenant improvements.

The tenant improvements required by the user were very specialized, costing $1,000,000.

By writing the loan for the TI’s for a term of 15 years and a lease for 15 years, the tenant would be able to afford the monthly loan payment and lease payment.

The Results

By encumbering the building for the $1,000,000 and making tenant and owner members of the borrowing LLC, the loan rate was reduced by being “owner occupied.” The actual tenant was the LLC, with a sublease to the user. The user was responsible for all debt service and accounting. The user provided security agreements to the owner and potent remedies in the event of default. The user got the “showplace” facility at an affordable cost with space for expansion. The owner received stable net monthly payments giving her a good return on equity.