We were planning for growth, burning cash, and this was a great shot in the arm that helped in both areas. It also showed GoDaddy that we were serious about our investment and belief in our growth story and became part of our consolidation strategy to bring the entire company under one roof including the NY office.”

– Brett Bowman, CFO, Main Street Hub

Background

In 2016, AQUILA, along with a partner, acquired a 1.3-acre property in East Austin with the intent to build a new office building on the site. The property was owned by Central Austin Rural Transportation System (CARTS) and was serving as the company’s headquarters when AQUILA acquired the property. CARTS needed to remain on the property while their new location was being finished in Bastrop, so AQUILA worked with the owner to enter into a leaseback while they finished building out their new location.

AQUILA then spent the next 12 months spearheading the design and entitlements process for the planned building.

Main Street Hub

During the entitlements process, AQUILA’s tenant representation team was working with Main Street Hub, a local startup that was spread across two buildings downtown. 

Main Street Hub was essentially landlocked within its current buildings with no room to expand. The company needed to grow in order to accommodate this growth plan and had long-term aspirations to bring the company under one roof in order to establish a “Main Street Hub” building. Since AQUILA’s tenant representation team was already aware of the East 6th development opportunity, they immediately put the property in front of Main Street Hub. 

The company saw an opportunity to achieve “hockey stick” revenue growth by hiring more salespeople. While the returns and the payback to the company associated with such growth were “strong to quite strong,” the immediate capital costs required were over $2 million, which created “financial anxiety” for Main Street Hub.

Read Next: Main Street Hub’s Headquarters: Preleasing an East Side Property for Consolidation and Growth

Results

The AQUILA tenant representation team created a structure for Main Street Hub to generate $3.5 million in initial proceeds that would allow Main Street Hub to meet the hiring needs required to achieve their target growth and have additional funds to handle any future disruption in consolidation costs. The initial proposal to the owners of 2010 East 6th was not approved, but an education of the company’s trajectory and an open book negotiation with the owners of East 6 and the executives and the investors of Main Street Hub resulted in an executed lease transaction four months later.

Main Street Hub was secured as a full building tenant before there was even a site development permit in hand, a rarity in the competitive Austin real estate landscape.

Because Main Street Hub was a pre-profit company, securitization was difficult, even with its strong backing from Silicon Valley Bank and Vista Equities. AQUILA was able to work with the investors and the landlord to craft a creative financial solution acceptable to all parties. This solution included AQUILA subordinating fees and posting Main Street Hub’s security deposit as well as providing Main Street Hub a carried interest in the equity proceeds of the building.

After the tenant was secured, the building needed to be redesigned to accommodate the tenant load. Main Street Hub wanted to keep the cost per person low rather than focus on the price per square foot. As a high-growth company, this meant designing for maximum efficiency and planning for the increased load on the building. 

Prior to delivery, GoDaddy acquired Main Street Hub. With the enhanced credit, AQUILA suggested that GoDaddy renegotiate the lease. AQUILA saw an opportunity to reduce GoGaddy’s GAAP rent, reduce the NPV of GoDaddy’s lease obligation and increase net sale proceeds to the owner of East 6, which by virtue of the structure mentioned previously, provided GoDaddy a profit interest. While this was challenging, it allowed the tenant and the landlord to both reach a more economically favorable result.

AQUILA broke ground in 2018 and delivered the building on time and under budget. The building was sold in 2019 for what was, at the time, the highest per-square-foot price in the East Austin submarket.

After selling the building, the partnership was able to defer any tax gains from the sale by acquiring five other Central Texas properties through multiple 1031 exchanges, which increased the equity value of the partners by approximately 3x during the COVID-19 pandemic

During the development, pre-leasing, and sale of East 6, AQUILA’s value as a full-service commercial real estate firm truly shined. AQUILA was involved in the tenant representation, landlord representation, and the development of the building, which resulted in clear channels of communication, efficient negotiations, and everyone leaving the deal happy. 

Want to know more about how we orchestrated this deal? Reach out to our investment services team today.