Starboard Realty Partners has made the largest—and priciest—addition to its portfolio with the purchase of a Sears Holdings Corp.’s regional distribution center in Colorado for $40.8 million.
The 1.3-million-square-foot property, about 10 miles northeast of downtown Denver, is the largest single-story industrial building in Colorado, according to local news reports.
It now doubles as the largest building in the portfolio of Newport Beach-based Starboard, which owns more than 30 industrial, office and multifamily properties in California, Utah, Arizona, Colorado and Texas.
Historically, most of its dealmaking has been in the $10 million and under range.
The company ramped up the size of its buying since bringing on Dan Vittone as a principal in 2016. He previously worked for the local brokerage offices of Avison Young and Voit Real Estate Services.
Starboard’s other two principals are Jon Schishler and Paul Belden.
Vittone told the Business Journal that if, or when, Sears vacates the Colorado site, Starboard would look to renovate the property, most likely for multitenant use.
“We were drawn to this asset because we believe we can increase value if/when Sears vacates or right-sizes their leasehold interest, but in the interim, we can cash flow at a healthy yield,” Vittone said.
Starboard paid a family trust about $31 per square foot for the building.
Sears uses the site for its stores in Colorado and several surrounding states, according to local news reports.
Starboard Realty said it obtained financing from BOK Financial for the purchase, which includes a commitment to cover construction costs in the event it can reposition the asset.
The company owns four other properties in the Denver market, including a vacant 105,000-square-foot Kmart store in Arvada that it plans to redevelop.
The buyer also has its eyes on a potentially large redevelopment project in its hometown.
Two years ago, it paid a reported $19 million for MacArthur Square, a collection of eight smaller-sized commercial buildings near John Wayne Airport.
The company’s looking to redevelop the 5.7-acre site with a mix of several hundred midrise apartments, restaurants and other space.
It’s the only Orange County-based asset currently in its portfolio, according to the company’s website. It has previously owned sizeable properties in Fullerton and Anaheim.
Starboard has bought nearly $800 million worth of buildings over its history, and completed $1.2 billion of asset sales, according to the company’s website.
Opportunities
Starboard joins Irvine-based LBA Realty LLC among OC real estate investors looking to capitalize on large industrial properties owned or leased by Sears that could be vacated by the struggling Hoffman Estates, Ill.-based retailer.
LBA, known for its opportunistic acquisition strategy, has added several Sears distribution and warehouse facilities across the U.S. in the past year or so, in deals approaching $120 million, according to national news reports.
Those deals include a 315,000-square-foot site in Santa Ana that LBA bought in 2017 for about $41 million.
Sears and its affiliates remain in that building, long used as an outlet center and distribution facility, according to CoStar Group Inc. records.
Last year, LBA bought two out-of-state large industrial properties from Sears and its logistics subsidiary, Innovel Solutions Inc.
It paid a combined $76 million for the two buildings: $43.8 million for a Sears distribution facility in Wilkes-Barre, Pa., and $32.2 million for another of the company’s industrial buildings in North Jacksonville, Fla.
Estimated to be about 750,000 square feet each, they were leased back to Sears and Innovel for the time being, but are expected to close soon, according to recent local news reports.
Sears has been shedding its real estate portfolio since it filed for bankruptcy protection in October.
It has closed about 150 Sears and Kmart stores—including 15 in Southern California—since.
That includes this year’s closure of its most prominent Orange County location at Costa Mesa’s South Coast Plaza.
Sears, a legacy anchor at the mall, sold its ownership in 2017 to C.J. Segerstrom & Sons, the operator of the 2.7-million-square-foot shopping center, for $187 million.
The mall owner hasn’t disclosed plans for redeveloping the site, and city planning officials said last month that no formal plans have hit their desks.
A litany of potential redevelopment options—ranging from new retail uses to high-end housing and hospitality projects—has been suggested as possibilities.
Upgraded Tenants
In January, Sears said that its chairman and former Chief Executive Edward Lampert won a bankruptcy auction with a $5.2 billion bid to keep at least 400 stores operating, down from about 1,000 a year ago.
Lampert is also chairman of Seritage Growth Properties, the retailer’s real estate investment trust spun off from Sears Holdings in 2015.
The REIT was created to generate diversified cash streams by leasing out space at its buildings to non-Sears tenants for much pricier rents.
It signed 31 leases covering 878,000 square feet during the fourth quarter with an average annual rent of $20.98 per square foot, according to a recent SEC filing.
It’s leased about 7.9 million square feet since 2015 at an average annual rent of approximately $17.65 per square foot, more than four times what the retailer was paying.
