Increase in profitability for the buyer

Sky Mežciems

Property type:

Supermarket building

Location:

Residential neighbourhood

The property consists of:

A supermarket building physically attached to the adjacent DIY store

Specifics of the deal

The owner of the supermarket chain — the anchor tenant in this case — was also the owner of the property and the seller. The sale price and the leaseback rate guaranteed the buyer a moderate but reliable yield.

The task given to Silver Fox

The seller wanted to sell the property and sign a leaseback agreement for a master lease. However, the buyer (an investment fund) wanted not only to sign a long-term lease with the anchor tenant but also to secure a certain level of returns, which was higher than the one offered.

The process of the deal

Direct bargaining did not bring an agreement on the price. A compromise between the buyer and the seller was reached when both parties realised it was necessary to move from the master lease to direct agreements between sub-tenants of the shopping centre and the new owner.

This meant an actual increase in returns on their investment for the buyer, while the seller was able to focus on its prime business instead of administering relations with minor tenants. Additionally, an agreement was reached with the neighbouring property owner on cooperation in improving the shared ventilation and power supply systems, which was expected to cut costs in the long term and thus to increase profitability.

Negotiations went on for ten months before the deal was closed.

The outcome:

The deal was successfully closed — the buyer enriched its portfolio with a commercial property with increased profitability, and the seller got a chance to concentrate on its main business.