Cove Capital Successfully Implements Value-Add Strategy to Multi-Tenant Retail DST Property

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By Dwight Kay, Managing Member and Founding Partner
Cove Capital Investments
Article Summary:
While past performance is never a guarantee of future results, Cove Capital Investments is currently in the process of repositioning a multi-tenant retail center Delaware Statutory Trust property in Waco, Texas. By acquiring the DST asset without leverage and at a price that was below replacement cost, Cove Capital quickly got to work to establish a multi-pronged, value-add strategy on this fully subscribed Delaware Statutory Trust investment property. To date, the program has been successful, and is a good example of how Cove Capital uses contrarian investment thinking to find what it believes to be under-valued assets that can potentially drive value for its 1031 exchange investors.
Key Takeaways:
  • Why Cove Capital Investments believes that acquiring debt-free real estate assets for its Delaware Statutory Trust offerings makes sense for many 1031 exchange investors? 
  • What specific value-add strategies is Cove Capital Investments implementing in this multi-tenant retail center DST investment offering?
  • How does the fully integrated Cove Capital Investments team approach a value-add real estate asset like the Parkdale Commons multi-tenant retail center on behalf of its 1031 exchange DST investors?

If you are a real estate investor and are looking for Delaware Statutory Trust investments, you will be interested in reading this article on how Cove Capital Investments is currently undergoing a multi-pronged, value-add strategy to a multi-tenant retail Delaware Statutory Trust property in Waco, TX.

As you read through this article, it is important to remember that past performance is not a guarantee of future results. There are material risks associated with investing in all real estate and DST investments including that returns and appreciation are never guaranteed and could be lower than anticipated as well as the potential for a loss of invested capital. All investors are encouraged to understand the pros and cons as well as the risk factors of DST investments by reading each offerings Private Placement Memorandum (PPM) prior to making any investment decisions.

As we have said many times before, Cove Capital Investments is considered by many to be one of the lower risk DST 1031 exchange sponsor companies because most of our DST offerings are debt-free, with zero leverage. This investment strategy is purposeful in that the number one goal for Cove Capital Investments is to potentially preserve investors capital from a lender foreclosure. In addition, another component to Cove Capital being a successful debt free DST 1031 sponsor company is that we are hyper focused on driving value potential for our investors and delivering consistent and meaningful income potential monthly to our investors. This means, the Cove Capital team of Delaware Statutory Trust experts are not afraid to dive in and get our hands dirty with assets like multi-tenant retail properties in an effort to drive value and income potential for our DST investors.

Delaware Statutory Trust Sponsor Acquired the Multi-tenant DST Asset Below Replacement Cost

When our acquisitions team presented the Cove Capital executive team with this particular investment opportunity that could be acquired with zero debt and have the potential to create equity growth for our investors, we wasted little time beginning the following investment strategy:

  • Expedite extensive marketing, leasing, and renewal program for expiring leases as well as those with ample term on them.
  • Marketing vacant space to new tenants
  • Begin to complete several capital and improvement maintenance projects.
  • Begin work on new outparcel lease agreement.
  • Work with tenants to improve their storefronts and curb appeal.
  • Negotiate with national tenants for lease extensions and early renewals.

While past performance does not guarantee future results, Cove Capital continues to drive value potential for our investors in this fully subscribed multi-tenant retail center DST offering through generating increased net operating income and adding value through impactful capital improvements. In addition to this, Cove Capital was able to acquire this asset at below replacement cost at a time when we felt the acquisition price made much more sense than it would have just a couple years ago.

Let’s take a closer look at Cove Capital’s Delaware Statutory Trust on-going value-add successes at Parkdale Commons.

Multi-Tenant Retail DST Property Case Study – Parkdale Commons, Waco TX

Image of 3 properties for Parkdale commons

This multi-tenant retail center DST asset in Texas was acquired in December 2022 with the following investment parameters:

  • Multi-Tenant Retail Center
  • Located in Waco, TX
  • 191,559 sq ft
  • 0% LTV – All-Cash / Debt-Free

Value-Add Leasing and Renewal Activity: The Cove Capital sponsor team was able to complete the following items on behalf of its DST investors at the property:

  • Signed a lease amendment with grocery store tenant for an increase in rent of approximately 45.83%+ in year 1, with 3% annual rental increases.
  • Signed a new lease with a salon tenant with a 52.72% increase in rental income.
  • Signed an assignment of lease with national BBQ brand for a multi-unit operator, strengthening the guarantee on the lease with a stronger operator.
  • Signed a lease amendment for a specialty tenant for a five-year extension, converting the gross lease to a NNN lease with a 44.60% increase in rental income.
  • Signed an early lease extension from 2025 to 2030 with one of the larger national tenants at the center.

Each of these initiatives above we believe created value for our DST investors due to the fact that we increased the properties net operating income (NOI) as well as extended the lease terms on select tenants. In the world of commercial real estate, increased NOI and longer lease terms equates to a higher potential value when the property is sold.

Not only are we happy to have done this for our 1031 exchange DST investors in the property we are also happy to have done this for ourselves as the founders of Cove Capital both were personally invested in this property as well.

Deferred Maintenance Program: Cove Capital was able to complete the following repairs and improvements to the DST property in a short amount of time:

  • Replaced 50,000 square feet of roofing
  • Resealed and restriped the entire parking lot
  • Repainted buildings for select tenants

These repairs and maintenance items created a greater amount of curb appeal for tenants and shoppers alike and added to the experience for all stakeholders at the center.

In Conclusion:
While past performance is never a guarantee of future results, Cove Capital Investments thesis to reposition the multi-tenant retail center in Waco, Texas is a good example of the DST sponsor company’s investment vision for A) value creation potential and B) risk mitigation via a debt free DST strategy. Through the acquisition of the asset without leverage and at a price below replacement cost, the Cove Capital team implemented a comprehensive value-add strategy, showcasing their commitment to generating value potential for investors. As the program progresses, it underscores Cove Capital's ability to seek to identify under-valued assets and reiterates the firm’s dedication to serving 1031 DST investors.