250 East Ponce is located on the eastern edge of the Decatur submarket in Atlanta, GA. This asset presented a great opportunity to acquire a core plus building in an extremely tight submarket in Atlanta at a significant discount to replacement cost. This 145K SF office building was 84% leased at the time of acquisition. Dilweg purchased the asset in August 2016 for $28.4M or $201 psf.
Built in 1962, 250 East Ponce consists of 9 floors of office space and a 1,150-space parking garage that included air rights zoned for multifamily development. The acquisition strategy was to maximize parking revenue, stabilize the rent roll, and potentially sell off a portion of the parking garage with the corresponding air-rights.
In addition to the above, in-place rental rates were significantly below market at the time of acquisition, and Dilweg intended to roll leases to market rates during the hold period. The entire top floor was vacant at the time of acquisition, providing an opportunity to lease the best space in the building. There was $1.25M of capital improvements needed in the first 2 years of the hold. This renovation included $700k of cosmetic and lobby enhancement and $550 for functional improvements. This renovation was to increase leasing activity in the remaining vacancy as well as with current tenant retention.
“We have established a track record of successfully acquiring, renovating, and profitably selling assets, and this property is no exception.”
Jerry Banks
AEO
During the 5-year hold period, Dilweg spent $2.2M on capital expenditures and $8.1M on leasing costs which included tenant improvements and leasing fees. Dilweg was able to increase gross revenue 14% and decrease operating expenses 8%. We greatly exceeded our underwritten disposition expectations. The in-place NOI was $730k higher than underwritten and market cap rates were 100 bps tighter than expected. Overall, great success story for Dilweg and our investors.