Staples Plaza is a 200,000 square foot community shopping center on a 22 acre site with 1,100 parking spaces located proximate to the Taconic State Parkway in Yorktown, NY.  Tenants include B.J.’s Warehouse Club (separately owned), Bed Bath & Beyond, Staples, A.C. Moore and Party City.  It was purchased in May 1999 for a pro forma purchase price of $13.6 million.  Total project cost was $16.7 million.  It was sold in June 2005 for $28.6 million.

.Market Opportunity
The shopping center was built in the 1960’s and suffered for many years after its original tenants vacated.  A subsequent conversion to a home improvement-themed mini mall proved unsuccessful.  Following a partially successful conversion into “category killer” retail, progress at the center stalled due to disputes among its owners. CCGL’s predecessor company attempted to purchase the entire property, but one of the 50% owners was unwilling to sell.  Nonetheless, CCGL’s predecessor company believed the property represented a significant repositioning opportunity and was prepared to purchase a 50% interest in it, provided CCGL’s predecessor company could manage the repositioning.

.Acquisition
In May 1999, a 50 % joint venture interest in the center was acquired by CREF I and two co-investors secured by CCGL’s predecessor company and CCGL’s predecessor company assumed management of the property.  The purchase price was discounted to reflect the lack of marketability of a joint venture interest.  At acquisition, the property was 88 % occupied and operating at breakeven.  Its complicated financing was overly costly.  The property was poorly maintained, had a tenant in bankruptcy and had not produced cash flow for 11 years.

.Results
Under management by CCGL’s predecessor company, the bankrupt tenant was replaced without cost or loss of rent, the Staples store was expanded by nearly 30 % and the last vacancy was leased to Bed Bath & Beyond with a lease containing a significant percentage rent clause.  The complicated financial structure was simplified at a reduced blended interest rate and deferred maintenance was completed.  All tenants’ sales were strong and the property produced significant cash flow.  Although the property was not on the market, CCGL was approached by a representative of a NYSE REIT, which made a pre-emptive offer to buy.  The property was sold for $28.6 million in June 2005.

CREF I owned a 16.76 % interest in the property.  The remaining equity was owned by the 50% joint venture partner and two professional real estate investors secured by CCGL.  The effective annual internal rate of return to the CREF I investors was 19.5%, net after all fees and carried interest to CCGL and its affiliates.