offering memorandum€¦ · giovanni oliva. associate director [email protected] +1...

McDonald’s (Ground Lease)

Subject Property

405 N Alvarado Street | Los Angeles, CA 90026

Offering Memorandum

Confidentiality and Restricted Use Agreement

This Confidential Offering Memorandum (“COM”) is provided by Stan Johnson Company (“SJC”), solely for your consideration of the opportunity to

acquire the commercial property described herein (the “Property”). This COM may be used only as stated herein and shall not be used for any other

purpose, or in any other manner, without prior written authorization and consent of SJC.

This COM does not constitute or pertain to an offer of a security or an offer of any investment contract. This COM contains descriptive materials,

financial information and other data compiled by SJC for the convenience of parties who may be interested in the Property. Such information is not

all inclusive and is not represented to include all information that may be material to an evaluation of the acquisition opportunity presented. SJC has

not independently verified any of the information contained herein and makes no representations or warranties of any kind concerning the accuracy or

completeness thereof. All summaries and discussions of documentation and/or financial information contained herein are qualified in their entirety by

reference to the actual documents and/or financial statements, which upon request may be made available. An interested party must conduct its own

independent investigation and verification of any information the party deems material to consideration of the opportunity, or otherwise appropriate,

without reliance upon SJC.

The Property may be financed or withdrawn from the market without notice, and its owner(s) reserve(s) the right to negotiate with any number of

interested parties at any time. The Property is offered and sold by its owner(s) as is, where is, and with all faults, without representation or warranty of

any kind except for any customary warranties of title.

BY ACCEPTING THIS COM, YOU AGREE THAT: (1) all information contained herein, and all other information you have received or may hereafter

receive from SJC relating to the Property, whether oral, written or in any other form (collectively, the “Information”), is strictly confidential; (2) you will

not copy or reproduce, and claim as your own without attribution to SJC, all or any part of this COM or the Information; (3) upon request by SJC at

any time, you will return and/or certify your complete destruction of all copies of this COM and the Information; (4) for yourself and all your affiliates,

officers, employees, representatives, agents and principals, you hereby release and agree to indemnify and hold harmless SJC all of its affiliates, officers,

employees, representatives, agents and principals, from and with respect to any and all claims and liabilities arising from or related to the receipt or use

of this COM and/or any other Information concerning the Property; (5) you will not provide this COM or any of the Information to any other party unless

you first obtain such party’s acceptance and approval of all terms, conditions, limitations and agreements set forth herein, as being applicable to such

party as well as to you; and (6) monetary damages alone will not be an adequate remedy for a violation of these terms and that SJC shall be entitled to

equitable relief, including, but not limited to, injunctive relief and specific performance, in connection with such a violation and shall not be required to

post a bond when obtaining such relief.

The information contained herein was obtained from sources believed reliable, however, Stan Johnson Company makes no guaranties, warranties or representations as to the completeness thereof.

The presentation of this property for sale, rent or exchange is submitted subject to errors, omissions, change of price or conditions, or withdrawal without notices.

Subject Property

Table of Contents

Stan Johnson Company177 East Colorado Boulevard | Suite 200

Pasadena, CA 91101

stanjohnsonco.com

Giovanni Oliva

Associate Director

[email protected]

+1 626.360.4659

CA BRE Lic: #02014410

Mike Knudsen

Associate Director

[email protected]

+1 626.360.4689

CA BRE Lic: #01840490

Offered Exclusively by

Aerial View - Facing North 5-6

Aerial View - Facing South East 7-8

The Offering 8-9

Investment Highlights 10-11

Lease Abstract 12

Redevelopment Potential 13

Tenant Overview 14-15

Market Overview 16-17

Demographics 18-19

Echo Park Submarket 20-21

Amenities Map 22-23

Local Development Projects 24-25

N

405 North Alvarado Street | Los Angeles, CA 90026

McDonald’s

Aerial View

Alexan South Echo 247 Units + 22,000SF

of Retail Space

Downtown Los Angeles 1.7 miles to the EastClosest

McDonald’s To Site (1.1 Mi)

Highway 101 (± 340,918 VPD)

W Temple Street (± 24,674 VPD)

N A

lvar

ado

Str

eet

(± 3

7,6

33 V

PD

)

Facing North

405 North Alvarado Street | Los Angeles, CA 90026

McDonald’s

N

Downtown Los Angeles ±1.7 miles to the East

±1.4 miles from Subject Property

Alexan South Echo 247 Units + 22,000SF of Retail Space

W Temple Street (±

24,674 VPD)

N Alvarado Street (± 37,633 VPD)

Aerial ViewFacing South East

McDonald’s (Ground Lease) • Los Angeles, CA 9McDonald’s (Ground Lease) • Los Angeles, CA8

Stan Johnson Company is pleased to present for sale fee simple interest in an extremely

rare trophy single tenant investment property ground leased to McDonald’s (“the Offering”)

in the densely populated, rapidly developing Echo Park submarket of Los Angeles,

California.

Available for the first time in a generation, the Offering represents a unique opportunity

to acquire a prime McDonald’s ground lease investment property in one of the top

metropolitan markets in the country. McDonald’s Corporation, one of the most iconic

and strongest companies in the net lease industry, has operated at this location on its

original corporate-guaranteed ground lease since 1992. The tenant has shown unwavering

commitment to the site by performing substantial renovations in 2005 and 2016, as well as

recently exercising its second of four 5-year options to extend with a 15% rental increase on

July 30, 2017.

The Offering is located on the northwest corner of North Alvarado Street and West Temple

Street a mile from Dodger Stadium and the Los Angeles Central Business District. The

asset is strategically positioned on a heavily trafficked signalized intersection that features

superior visibility and combined traffic counts exceeding 61,000 vehicles per day. The

Offering also benefits from immediate access to the U.S. 101 Freeway where over 296,000

vehicles pass by daily. The immediate area features exceptional population density with

over 93,000 residents within a 1-mile radius and 537,000 residents within a 3-mile radius.

The Echo Park neighborhood has enjoyed robust population growth and experienced

commercial development on a massive scale in recent years, as evidenced by over 400 new

multifamily units currently under construction within a 1.6-mile radius of the site.

This growth is only going to strengthen McDonald’s same-store sales, as well as

further enhance the unparalleled appreciation potential of this irreplaceable real estate.

Furthermore, based on our survey of comparable ground leases throughout Greater Los

Angeles, as well as our projections for the tenant’s gross sales at this location, we believe

there is significant potential to renegotiate a long-term ground lease with McDonald’s at a

substantially higher rental rate. Thus, the Offering provides qualified buyers with a passive

investment opportunity that has the ideal blend of long-term cash flow and appreciation

potential, and is backed by one of the strongest corporate guarantees in the net lease

industry.

The Offering

Subject Property Photos

McDonald’s (Ground Lease) • Los Angeles, CA10

Investment HighlightsTrophy Urban Los Angeles Real Estate

• Extremely rare opportunity to acquire an urban McDonald’s ground lease in the heart of Los Angeles

• Hard signalized corner with combined traffic counts exceeding 61,000 vehicles per day

• Immediate 101 Freeway access with combined traffic counts exceeding 296,000 vehicles per day

• Unparalleled population density with over 93,000 people in a 1-mile radius and 537,000 people in a 3-mile radius

Proven Location With Strong Operating History

• McDonald’s Corp. has operated at this location for over 25 years

• McDonald’s significantly renovated their improvements in both 2005 and 2016

• McDonald’s has exercised two of their four extension options, exhibiting unwavering commitment to this location

• Rare rental escalations of 15% every five years throughout lease indicate McDonald’s in enjoying robust same-store sales

Coveted Retail Tenant and Lease Structure

• Absolute net lease structure with zero management responsibilities

• Property is leased to the most iconic quick-service restaurant brand in the world

• Corporate-guaranteed lease backed by one of the strongest investment-grade tenants in the net lease industry

• Two option periods remaining with rare 15% rental escalations offer strong hedge against inflation and rising interest rates

Tremendous Long-Term Cash Flow and Appreciation Potential

• Comparable ground leases in LA County and strong forecasted same-store sales suggest McDonald’s is paying a significantly below-market rent

• The Echo Park submarket continues to enjoy tremendous population growth and commercial development

Downtown Los Angeles

Pico / Union

West Lake

Echo Park


Silver Lake

Cypress Park

Boyle Heights

Lincoln Heights

McDonald’s (Ground Lease) • Los Angeles, CA 13McDonald’s (Ground Lease) • Los Angeles, CA 12

Lease AbstractLease Type Absolute Net Ground Lease

Guarantor McDonald’s Corporation

Ownership Type Fee Simple Interest (Land)

Landlord Obligations None

Year Built / Renovated 1992/2005 & 2016

Building Size 2,513 SF

Building Type Freestanding Drive-Thru

Lot Size 20,747 SF (0.47 AC)

Rentable Square Feet 18,500 SF (0.42 AC)

Parking 22 Surface Spaces (8.75/1,000 SF)

Zoning LAC2*

Annual Base Rent $180,900

Lease Commencement 2/19/1990

Rent Commencement 7/30/1992

Lease Expiration 7/29/2022

Years Remaining 4.5+

Renewal Options Four 5-Year Options

Rental Increases 15% Every 5 Yrs. Through Options

Right of First Refusal Yes**

Rent Schedule

Period Annual Rent Adjusted Cap Rate

Current Option (7/29/22) $180,900 3.02%

Option 3 (7/30/22 -7/29/27 $208,035 3.47%

Option 4 (7/30/27-7/30/32) $239,240 3.99%

**Tenant shall have the first option to purchase the Premises by giving written notice to

Landlord of its intention to purchase within such 30-day period following receipt of a purchase

offer, and at the same price and on the same terms as any such offer (L, Sec. 15, Pgs. 8-9).

Offering Price $5,575,000

3.24% Cap Rate

*Redevelopment PotentialZoned General Commercial (LAC2), the Offering is also located within the City of Los Angeles’ Tier 2 Transit-Oriented Community Overlay.

In the event the Offering is acquired for the purpose of

redevelopment, based on its by-right zoning specifications of C2-

1VL, the site allows for the construction of 52 R4 residential units.

However, due to the Offering’s strategic location within the Tier 2

Transit-Oriented Community Overlay, there are bonus density rights

which would allow a developer to boost the total number of units

by 60%.

For further information, please visit the City of Los Angeles’

Department of Planning website:

http://planning.lacity.org/ordinances/docs/toc/tocguidelines.pdf

Disclaimer: Please be advised that any and all information written

above regarding the development potential of this site will need to

be independently verified, and the buyer must conduct their own

thorough due diligence.

Subject Property

Subject Property Photos

McDonald’s (Ground Lease) • Los Angeles, CA 15

Tenant OverviewMcDonald’s is still the dominant player among

quick-service restaurants in the United States

market from a volume perspective, enjoying an

industry-leading market share of approximately

17%. The iconic fast-food chain has over 36,000

locations around the world, including more than

14,000 locations in the U.S. It finished 2016 with annual sales revenue

of $24.62 billion and $9.34 billion in earnings.

Since CEO Steve Easterbrook took the top job in March of 2015,

McDonald’s Corporation has launched an aggressive turnaround

plan with the goal of being recognized by customers as a modern

and progressive burger company. The Company prioritized fewer,

more strategic initiatives that focused on running better restaurants,

driving operational growth, and returning excitement to the brand. It

adapted to changing consumer tastes by launching all-day breakfast,

switching to never-frozen beef for its Quarter Pounders, offering

mobile ordering through its smartphone app, and even partnering

with Uber Eats to offer food delivery in major markets where

almost 75% of the population live with three miles of a McDonald’s

restaurant.

As reflected by improved customer satisfaction measures and same-

store sales revenues across most of the major markets, customers

have taken notice. The company showed continued strong results

in its latest quarter (Q2 2017) with comparable-restaurant sales

growth of 6.6% and net income up 28% year over year to $1.39

billion. McDonald’s commitment to quality, convenience, and value

combined with a willingness to innovate will ensure the Company’s

success for decades to come.

Tenant Profile

Company Name McDonald’s Corporation

Ownership Type Public

Stock Symbol NYSE: MCD

Headquarters Oak Brook, IL

Credit Rating S&P: BBB+

Website mcdonalds.com

Locations Worldwide 37,000

Location in the U.S. 14,000

Balance Sheet

Market Capitalization $135 Billion

Total Assets $32.56 Billion

Long Term Debt $28.40 Billion

Cash & Short-Term Inv. $2.67 Billion

Current Ratio 1.28

Quick Ratio 1.27

Annual Figures 2016

Sales Revenue $24.62 Billion

Net Income $4.69 Billion

Net Profit Margin 19.03%

2Q16

8%

3Q16

10%

4Q16

11%

2Q17

13%

1Q17

10%

Same-Store Sales Growth (Foundational

Markets) MarketRealist.com

$134.76 Billion

Market Cap

$24.54 Billion

Annual Revenue

BBB+

Credit Rating

Representative Photo

Representative Images


Market OverviewLos Angeles, California is an international destination and the second

most populous city in the United States with nearly 4 million total

residents. Los Angeles County, easily the largest in the country with

a total population exceeding 10 million, boasts a massive, dynamic

economy that ranks as the 4th largest in the U.S., with prominent

industries including entertainment (motion pictures, television, music

recording and production, video games), aerospace, technology,

fashion, apparel, tourism, and education. Los Angeles County is home

to over 50 higher education institutions, including some of the best

universities in the world. The Port of Los Angeles is the country’s

busiest container port and employs nearly 900,000 people with

approximately $1.2 Billion worth of cargo passing through daily.

The Los Angeles area ranked No. 1 in North America in a survey of

global real estate investors who have a combined total of $1.7 trillion

to spend on property in 2017 (CBRE Investors). Top choice cities

for investment in other regions were London and Sydney, Australia.

Downtown Los Angeles in particular, which has seen billions of dollars

worth of investment from Chinese and Canadian firms in recent years, is

also growing in appeal to U.S. developers with experience in other cities

like New York and San Francisco where old neighborhoods have already

been transformed.

Los Angeles, CA


0 - 1 mi. 0 - 3 mi. 0 - 5 mi.

2017 Population 98,647 568,706 1,233,572

2022 Population 102,116 591,360 1,278,337

2017 Total Households 33,288 213,466 428,821

2022 Total Households 34,349 222,296 444,323

2017 Average Household Income $50,894 $55,878 $61,304

2017 Median Household Income $33,432 $34,685 $37,819

Demographics405 N Alvarado Street | Los Angeles, CA 90026

N

3 miles

5 miles

1 mileLos Angeles

Los Angeles

± 98,000total population within 1 mile

$50,894average income within 1 mile

Los Angeles County

With over 10.1 million residents

within its borders, Los Angeles

County is the most populous county

in the United States by a wide

margin. Its temperate climate and

diverse entertainment options make

it a desirable place to live, and its

considered one of the world’s true

destination cities.

#1POPULATION

Los Angeles attracts institutional

capital from private equity, REITs,

and foreign buyers seeking low

risk investments in a coveted

market with historically strong

appreciation. With $27.6 billion in

commercial property sales in 2015,

Los Angeles trailed only Manhattan

in aggregate sales volume (Real

Capital Analytics).

#2CRE MARKET

Los Angeles County’s position

as a leader in a diverse range of

industries, including logistics, real

estate, entertainment, aerospace,

higher education and the arts,

helps rank it as the world’s

19th largest economy by Gross

Domestic Product.

#19ECONOMY

Echo Park SubmarketKnown as one of Los Angeles’ hippest neighborhoods, up-and-coming Echo Park has enjoyed an influx of trendsetters that have helped transform

it into a popular and desirable place to live. Sandwiched between Silver Lake, Chinatown, and Downtown Los Angeles, its central location enjoys

quick access to the 101 and 110 freeways and houses Dodgers Stadium within its borders. Young professionals are scooping up the area’s historic

bungalows and developers are meeting the increased demand for residential and commercial space with multiple developments projects well

underway. The area is buzzing with a creative verve and boasts an impressive lineup of trendy coffee shops, dive bars, indie music venues, and

eateries along Sunset Boulevard.

Market Segmentation (1-mile radius from site)

Per STDB.com’s Restaurant Specialty Report dated August 11, 2017, the McDonald’s located

on the Subject Property controlled a 29% market share of total visitors vs. the top seven quick

service restaurants located within a one-mile radius of the site within the last six months.

McDonald’s

Taco Bell

Burger King

Wendy’s

KFC

Jack in the Box

Chick-fil-A

Market Share Vs. Top Competitors in Last 6 Months

Total %

McDonald’s 36,261 29%

Taco Bell 21,175 17%

Burger King 18,632 15%

Wendy’s 15,717 13%

KFC 15,155 12%

Jack-in-the-Box 11,628 9%

Chick-fil-A 6,777 5%

Total 125,345 100%

As of July 2017, the average price per square foot for Echo Park real estate has increased by 13% within the last twelve months, compared to the previous annual period (Trulia).

29%

5%

9%12%

13%

15%

17%


Echo Park | Los Angeles, CA

McDonald’s (Ground Lease) • Los Angeles, CA22

Harris NewmarkHigh School

± 427 Students

Belmont High School

± 978 Students

Amenities Map

N

1 2

4

35

67

8

Echo Park


N A

lvar

ado

St (

±29,

090

VPD

)

Temple St (±24,674 VPD)

Beverly Blvd (±29,090 VPD)

Ram

part

Blv

d (±

21,6

78 V

PD)

Gle

ndal

e B

lvd

(±

35,1

31 V

PD

)

Sunset Blvd (±233,517 VPD)

Hwy 101 (±328,923 VPD)

I-110

(±27

0,004 V

PD)

Stadium

Way (±20

,996 V

PD

)

Dodger Stadium | Los Angeles, CA

Downtown | Los Angeles, CA

1 333B Apartments 69 Units

2 Echo Designer Lofts 49 Units

3 2335 West Temple 71 Units

4 Boylston Arms 121 Units

5 Alexan South Echo 247 Units

6 1201 West Sunset 45 Units

7 2300 Beverly 45 Units

8 Cactus Los Angeles 47 Units

Local Development Projects


333B Apartments333 Belmont Street

Mixed-Use with 69 residential units and 1,100 SF of

restaurant space

Distance: 0.1 miles

Status: Completed 3/17

Developer: The Bond Comp.

1

2335 West Temple2335 W Temple Street

Apartment complex with 71 residential units

Distance: 0.2 miles

Status: Proposal Submitted

Developer: Victor Svilik

Echo Designer Lofts1647 W Temple Street


Distance: 0.4 miles


Developer: 4Site Real Estate

Boylston Arms401 N. Boylston Street


Distance: 1.6 miles

Status: Expected Early 2019

Developer: LA Urban Homes

2

43ECHO PARK

WEST LAKE

Alexan South Echo1910 W. Temple Street

Mixed-Use with 247 residential units and 22,000

SF of retail

Distance: 0.1 miles

Status: Expected 10/18

Developer: Trammell Crow

2300 Beverly2300 Beverly Boulevard

Mixed-Use with 45 residential units and ground

floor retail space

Distance: 0.5 miles

Status: Under Construction


1301 West Sunset1301 W. Sunset Boulevard

Mixed-Use with 45 residential units and 1,000 SF of retail

Distance: 1.5 miles

Status: Expected Late 2017

Developer: Warren Techentin

Cactus Los Angeles2510 W. Temple Street

Mixed-Use with 47 residential units and 2,000 SF of

restaurant space

Distance: 0.4 miles



5 6

7 8

going beyondGiovanni OlivaAssociate [email protected]+1 626.360.4659CA BRE Lic: #02014410

Mike KnudsonAssociate [email protected]+1 626.360.4689CA BRE Lic: #01840490

Exclusively Listed By

Stan Johnson Company177 East Colorado Boulevard | Suite 200Pasadena, CA 91105

stanjohnsonco.com

offering memorandum€¦ · giovanni oliva. associate director [email protected] +1...

Documents