The Capital Stack
Salado, TX Airport Lots
If you’ve been with us for a while, you might remember that we partnered with two friends to purchase three lots at an airport in Salado, Texas. In our early newsletter, the 8th Edition to be exact, we discussed how the plan came together. Hangar homes have gained popularity among the pilot community (so I’m told), and one of our partners was pursuing his pilot’s license. He quickly realized the scarcity of hangar space near Austin. The ideal location was Georgetown Airport, but it had a long 6-year waiting list. The next option was Lago Vista, but it was already highly developed, and lot prices exceeded $250,000.
Taking Off: The Salado Airport Opportunity
In 2021 met with the Salado Airport developer, who presented us with his plans. We made the decision to go in on it. At that time, the airport had a grass runway primarily used for a parachute operation. Occasional hobby planes landed there, but it was largely underutilized. The developers were subdividing the land along the runway and the future taxiway, which didn’t even exist at the time.
To make a long story short, we purchased three lots with cash and planned to wait for the runway to be paved. Then, we would construct one of those sought-after hangar homes, typically selling for over $850,000, at an approximate building cost of $650,000. We moved forward with zero due diligence and completed the purchase. We then began contacting architects to share our vision: a 100×50 hangar with roughly 5,000 square feet of living space that could be divided or used individually.
Turbulence: The Salado Airport Opportunity
Because of these pesky things known as building codes, it was determined we could only build 1,500 sf of living space. That was our first setback. Next, we explored pricing for a bare hangar, we were looking at around $450,000 for one large unit. To proceed, we would have needed a loan to cover the additional construction costs beyond our ~$180,000 of equity, not to mention managing the construction process. Given our other ongoing projects and the fact that the site was still undeveloped and the runway unfinished, we decided to put the hangar project on hold for the time being.
Clearing The Runway: The Salado Airport Opportunity
Fast forward 18 months to early 2023, we reached a firm decision: it was time to focus exclusively on selling the lots. There were only a few others on the market, and they were priced significantly higher than our initial investment. One of our partners, who is a pilot, chose to retain his lot, while we listed the remaining two. We received a cash offer of $110,000 for each lot relatively quickly, which was well above our initial cost of around $58,000 per lot. We wasted no time and swiftly completed the sale within a week.
In the grand scheme of things, this move is a minor part of our Consolidation Strategy, following the successful sale of Pinehurst Apartments and Hollyvillage. By parting ways with a property that was not yielding any income, we free up funds that can be better utilized in covering pursuit costs for our upcoming multifamily acquisitions. While it was a fun idea, it’s satisfying to have moved on from it, and the best part is that we managed to realize a substantial profit of approximately 80%, all without thinking about the place for two years.
Major Market News
Rite Aid Leases for Sale
The task of selling leases for Rite Aid store locations, as the company navigates through bankruptcy, has begun. Rite Aid, a publicly traded pharmacy chain, has enlisted the services of A&G Real Estate Partners to sell 78 leases for Rite Aid and its subsidiary, Bartell Drugs. Potential tenants include dollar stores, gyms, grocers, specialty discount stores, and fast-food restaurants. The Rite Aid leases have 10 years or more remaining on their terms, which is advantageous for sales. The value of these leases considers factors like the remaining lease term and the physical condition of the store. Rents for the leases for sale are expected to be below market rate. Rite Aid’s bankruptcy proceedings entail responsibility for at least 15 percent of rents for the leases they are divesting. In addition to the lease sales, the company plans to close 154 stores, amounting to around 7 percent of its total locations, and market 21 fee-owned properties.
Source: The RealDeal. (2023, Oct 19th) Rite Aid bankruptcy puts retail leases up for sale. https://therealdeal.com/la/2023/10/19/rite-aid-bankruptcy-puts-retail-leases-up-for-sale/
Tips and Tricks
Better To Be Lucky Than Smart- Regardless of the asset class, acquiring properties with high demand and low supply is a bulletproof method. This airport lot never would have entered my thought process without a one-week trip down to Texas to look at another project. Had we done actual underwriting and due diligence on this, we probably wouldn’t have done it. On paper, it didn’t make much sense. We got lucky that the values of the lots increased and made money, had we been “smart” about it, we would have not bought them in the first place. Put yourself in a position to get lucky once in a while and good things happen.