In October 2022, Matthews™ identified a mis-marketed property at 635 Front Street in El Cajon that was being positioned as an owner-user opportunity despite operating as a multi-tenant industrial asset with five month-to-month tenants in place. The property was acquired for $4.1 million, followed by a light value-add program that included releasing the units at higher market rates. Approximately one year later, the asset was sold for $6.0 million, creating a significant equity gain and placing the client into a 1031 exchange with approximately $3.0 million of equity. The client’s objective was to redeploy capital into a diversified group of assets with a blended return profile.

 

Challenge

The exchange occurred during a period of rising interest rates and declining transaction velocity, when many sellers were slow to adjust pricing expectations. The client needed to identify suitable replacement properties within a compressed exchange timeline while balancing income stability with value-add upside. Sourcing attractive opportunities in a market with limited on-market inventory required creativity, speed, and access to off-market deal f low.

 

Strategy

Matthews™ leveraged its off-market pipeline to present multiple acquisition opportunities that aligned with the client’s risk and return objectives. The strategy focused on assembling a diversified portfolio consisting of a stabilized asset, a medium value-add opportunity, and a deep value-add investment. By targeting fully off-market transactions, Matthews™ was able to avoid competitive bidding environments and negotiate favorable pricing and terms despite broader market headwinds.

 

Result

The exchange was completed with the acquisition of three fully off-market properties, each serving a distinct role within the portfolio.

 

The stabilized asset was a retail and showroom property located at 2645 Auto Parkway in Escondido, acquired for $2.465 million. The property was fully leased to Off-Road Warehouse, a regional operator with more than 50 locations across the western United States, providing durable, credit-backed cash flow.

 

The medium value-add acquisition was 601 Front Street in El Cajon, purchased for $2.55 million. The single-tenant property was leased to Western Water Works, with a near-term lease maturity at rents determined to be well below market. Shortly after closing, the lease was renewed at a substantial increase without requiring any out-of-pocket capital expenditures.

 

The deep value-add component of the strategy was 10149 Channel Road, acquired for $3.3 million. The property was a multi-tenant industrial asset with short-term leases, offering significant repositioning and income growth potential.

 

Following the exchange, the client increased total portfolio square footage from 25,085 square feet to 30,700 square feet and achieved a stabilized portfolio yield of 7.47%, successfully converting a single opportunistic sale into a more diversified, higher-performing investment portfolio.