April 2024 | Volume 12

EXCITING NEWS!

Lonicera is thrilled to announce two major milestones that signify our continued growth and success.

Firstly, we are delighted to report the successful refinancing of Lonicera Fund I. This strategic move has enabled our team to distribute the remaining unreturned capital to our investors. While retaining their pro rata share of Lonicera Fund I, investors now have their entire capital returned, marking a significant achievement for all involved.

Secondly, we are excited to introduce our latest investment opportunity: the Peak Investment Fund. Comprising 1,200,000 square feet of prime industrial, office, and flex warehouse space, this fund boasts an impressive $41.5 million asset value and currently maintains an impressive 85% occupancy rate. Spanning across key locations including Minneapolis, Minnesota, Cleveland, Ohio, Mobile, Alabama, and Paris, Kentucky, the Peak Investment Fund promises lucrative prospects. Projections indicate an estimated 20% Internal Rate of Return (IRR), 13% cash on cash return, and a remarkable 2.3 equity multiple.

KNOWLEDGE HUB: INSIGHTS AND INFORMATION

The Art of Lease Analysis in Commercial Real Estate Investment

For any commercial real estate (CRE) investor, mastering the art of lease analysis is critical to understanding the value of an investment and its potential return. Commercial leases are complex documents that can significantly impact the financial performance of a property. Let’s explore how we scrutinize leases to ensure we are making a sound investment.

Understanding Commercial Leases

Unlike residential leases, which are typically straightforward and short-term, commercial leases are often long-term agreements with detailed provisions that can affect the property's profitability. These leases can be categorized into several types, such as net leases, double net leases, triple net leases, and gross leases, each defining how costs are shared between the landlord and tenants.

Key Aspects of Lease Review

Lease Term and Tenant Stability: We look at the length of the lease terms and the stability of the tenants. Long-term leases with reputable tenants can provide stable cash flows and reduce turnover costs, enhancing the property's value.
Rental Income Analysis: Assessing the rental income involves more than just looking at the current rates. We examine scheduled rent increases (step-ups), rent abatement periods, and escalation clauses that impact future revenue. Understanding these factors helps in forecasting the property's cash flow and determining its financial health.
Expense Pass-Throughs: Particularly relevant in net lease arrangements, expense pass-throughs determine which operating costs (like taxes, insurance, and maintenance) are borne by the tenant. Analyzing these terms is crucial for understanding the net operating income (NOI) of the property, as they directly affect the landlord's cost burden.
Renewal and Termination Options: Terms that outline renewal options, early termination clauses, and penalties are critical as they impact the property’s occupancy rates and financial stability. We need to evaluate the likelihood of tenant continuity and the potential costs associated with finding new tenants.
Subleasing and Assignment Provisions: These clauses dictate the tenant's rights to sublease or assign the lease to another party. They are important for understanding how flexible the property is in terms of tenant mix and risk management.
Default Provisions and Security Deposits: Reviewing what happens if a tenant defaults on their lease is crucial. Security deposit amounts and conditions for forfeiture also need careful examination to assess financial risks.
Use Clauses: These clauses define what activities the tenant is permitted to engage in on the premises. Ensuring that these activities are compatible with the property's location and zoning is vital to prevent legal issues and ensure the tenant’s business viability.

Why Lease Analysis is Critical

Risk Mitigation: Comprehensive lease analysis helps identify potential risks in tenant contracts, enabling us to mitigate them before finalizing a property purchase.

Investment Valuation: Understanding the lease obligations and rights is fundamental in determining the real value of the property. Incorrect assumptions about rental income or tenant stability can lead to a flawed property valuation.

Strategic Planning: Knowledge of lease particulars aids in strategic planning regarding property improvements, future tenant marketing, and negotiations of new lease agreements.

Conclusion

Lease analysis is a detailed and nuanced aspect of commercial real estate investment that can significantly influence an our decisions and the profitability of an investment. By thoroughly reviewing lease agreements, we gain insights that go beyond the surface, enabling us to forecast financial performance more accurately and make informed investment choices. Understanding the complexities of commercial leases is indispensable for successful investment outcomes.

COMMERCIAL LEASING OUTLOOK

In contrast to the slight lag in commercial leasing observed in 2024 compared to 2022 and 2023, our portfolio at Lonicera remains unaffected. Across Funds I-IV, our occupancy rates stand impressively at 96%, with our office spaces reaching an exceptional 95% occupancy. This surpasses the national average for office occupancy, which currently stands at 81.8%. These figures serve to reinforce our assertion that we engage top-tier leasing agents and consistently adopt dynamic strategies to enhance occupancy levels across our properties.

FUTURE OUTLOOK

If you have any questions about Lonicera Investments, our past performance, or our current or future investments, please reach out. We would be happy to sit down with you and answer any questions you have!

Email us with your desired meeting date and time and we will schedule the appointment.

ANY ESTIMATES OR PROJECTIONS AS TO EVENTS THAT MAY OCCUR IN THE FUTURE, INCLUDING PROJECTIONS OF REVENUE, EXPENSE AND NET INCOME CONTAINED IN THIS VALUATION SUMMARY OR ANY OTHER OFFERING DOCUMENTS, ARE BASED UPON THE BEST JUDGMENT OF THE COMPANY’S MANAGEMENT AS OF THE DATE OF THIS VALUATION SUMMARY OR THE APPLICABLE OTHER OFFERING DOCUMENT. WHETHER OR NOT SUCH ESTIMATES OR PROJECTIONS MAY BE ACHIEVED WILL DEPEND UPON THE COMPANY ACHIEVING ITS OVERALL BUSINESS OBJECTIVES AND THE AVAILABILITY OF FUNDS. THE ESTIMATES AND PROJECTIONS NECESSARILY MAKE NUMEROUS ASSUMPTIONS WITH RESPECT TO INDUSTRY PERFORMANCE, GENERAL BUSINESS AND ECONOMIC CONDITIONS, TAXES AND OTHER MATTERS, MANY OF WHICH ARE BEYOND THE COMPANY’S CONTROL. THERE IS NO GUARANTEE THAT ANY OF THESE PROJECTIONS WILL BE ATTAINED. ACTUAL RESULTS MAY VARY FROM THE PROJECTIONS, AND SUCH VARIATIONS MAY BE MATERIAL. THE COMPANY HAS NO OBLIGATION TO UPDATE OR OTHERWISE REVISE THE ESTIMATES OR PROJECTIONS TO REFLECT CIRCUMSTANCES EXISTING OR DEVELOPMENTS OCCURRING AFTER THE PREPARATION OF THE ESTIMATES OR PROJECTIONS OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.