On November 12, 2013, an Albuquerque business owner plead guilty to defrauding the Service-Disabled Veteran Owned Small Business Program (SDVOSB), a VA initiative that gives preferential treatment to veterans applying for federal contracts. By falsely claiming his stepbrother—who was in fact a disabled veteran—held an ownership stake in his company, he fraudulently secured $11 million worth of federal contracts and was sentenced to five years in prison.
This tragic lapse in judgement resulted in the shuttering of an enterprise that operated a sprawling facility (about 32,000 square feet of buildings on 16.5 acres) on Albuquerque’s Southwest Mesa which manufactured large concrete vaults for mausoleums. It was an enviable operation in its prime, but lengthy prison sentences are not good for business and the property quickly went into foreclosure.
For the next several years attempts were made to liquidate the property, but a number of unique circumstances prevented this from happening. For one, the surrounding area was transforming. The heavy industrial operation originally occupied a rural area but was now surrounded by residential developments. Secondly, the property could not compete with comparable sites that possessed better truck access to interstate exits. A 3.5-mile stretch separates the site from I-40, which proves especially lengthy during rush hour.
Furthermore, the property’s scale and uncommon attributes rendered it difficult to find a user that could make use of it as is. Initially brought to market at $4,100,00 the price dropped 25% to $3,125,000 when no progress was made. Then, copper thieves performed their regrettable task and subjected the property to another 20% reduction. Four years later a last-ditch effort to sell was made via an auction—even that did not work.
When Maestas & Ward’s industrial team (Keith Meyer, Jim Wible, Riley McKee) got involved the property was a shadow of its former glory. Years of inattention, several bouts of theft, and nature’s course of action turned it into an overgrown, graffiti tainted shed.
The M&W industrial team understood that a healthy dose of realism had to be injected into the seller’s expectations for any chance of a sale being consummated. After a detailed analysis, it was determined that only the land carried value. The improvements—or what was left of them—would require significant rehabilitation, perhaps at a cost that exceeded the acquisition cost. To their credit, the seller heeded this advice and agreed to market the property at $1,800,000—56% below its original value.
Due to favorable market circumstances and the significant value-add opportunities available, the property quickly generated attention. Within a few months it went under contract to be purchased by an industrial user. However, the surrounding area’s evolution from industrial to residential/retail shuttered the deal as the buyer was unable to secure a zoning certification for their use. Transactions falling through are disheartening but what proved most concerning was the realization that an obviously industrial site might not be able to be sold as such.
Surprisingly, a more viable opportunity quickly came along. A charter school developer and his brokerage team shrewdly discerned that this defunct industrial site, while far from ready-made, conferred multiple advantages from its proximity to major thoroughfares (Coors and Old Coors), location in a dense residential neighborhood, and lower acquisition cost on a per foot basis. A purchase agreement was quickly negotiated, but the story was far from over—several hurdles remained.
The first involved a zone change. Educational uses were not permissive in the subject property’s M-1 zoning designation which made a retail/commercial designation necessary. The brokerage team coordinated with a reputable architect to prepare a thorough, compelling argument for why the subject property’s highest and best use had shifted. Industrial uses no longer fit a neighborhood dominated by residential and retail developments. The county zoning board was sympathetic to these arguments but consented unanimously when it was revealed a highly successful charter school was the intended buyer.
The second hurdle involved environmental concerns. Though the seller had procured a Phase I ESA that reported no Recognizable Environmental Conditions (REC) as recently as January 2016, when that same assessor revisited the site to refresh the report, they changed their tune. Claiming that the property’s decades of heavy industrial use warranted further testing they refused to uphold the previous report’s conclusions. Both buyer and seller were understandably aggrieved but informed guidance from the brokerage team kept things on track. An extension was agreed to and further environmental testing yielded no RECs, just as the initial report indicated.
Then came the most unexpected hurdle of all—the cause of which remains unclear—a fire in one of the warehouse buildings. Having navigated so much thus far this felt like the ultimate injustice. Once again, the brokers provided reasoned guidance and ultimately it was agreed that the seller would file a claim with the insurance company and direct the funds to the buyer post-closing which occurred at long last on December 13, 2018.
Many lessons can be pulled from this account. The prime takeaway, however, is the vital contribution of experienced brokers in a transaction with so many hurdles. From valuation to marketing strategy to negotiation to a zone change hearing to coordinating with environmental engineers to dealing with the most unexpected acts of God, the brokers involved patiently bridged the gap between a lifeless non-performing asset and the thriving charter school it is today.
1255 Old Coors was awarded the 2019 CCIM Deal of the Year Over $1,000,000 this past October at the 2019 Intersections Conference held at Sandia Casino.
NAI Maestas & Ward is a full-service commercial real estate company serving New Mexico since 1996. The company is a dynamic commercial real estate firm offering best-in-class real estate services in brokerage, property management, asset management, business brokerage and development services.
