AQUILA was hired in 2014 by Lutheran Campus Ministries (LCM) to assist in selling and redeveloping its Student Center at 2100 San Antonio Street in Austin, Texas. LCM wanted to remain on the site in the new development, but they also wanted to monetize the site to support their ministry.
After winning the engagement, AQUILA set to work on an extensive discovery process, interviewing stakeholders to understand their goals, determining all options to achieve these goals, and doing extensive financial analysis on each option.
Several challenges arose out of this discovery process. First, we learned that the site, which encompassed .5949 acres or approximately 26,000 square feet, needed to accommodate a 5,000-to-6,000-square-foot worship center and 25 parking spots. This requirement made for a remaining land area too small to draw interest from most commercial real estate investors.
Second, the site was jointly owned by two separate Lutheran entities – Texas District of the Lutheran Church – Missouri Synod (LCMS) and Evangelical Lutheran Church in America (ECLA) – each of which had different missions, complicating the transaction internally. One group wanted to remain on the site in the new development, while the other wanted to maximize the cash generated from the sale.
A benefit was that the property sat within the boundaries of Austin’s University Neighborhood Overlay (UNO) which provides unique and less-restrictive zoning regulations for development.
Structure the Transaction
Initially, both Lutheran parties were interested in an outright land sale, but the results from the discovery process led AQUILA to recommend a carefully structured unsubordinated ground lease as the ultimate solution. AQUILA educated both parties on the benefits of structuring this sort of transaction and proposed a creative solution that would give ECLA the cash infusion and worship space they needed, while also allowing LCMS to maintain their commercial real estate investment and achieve long-term ownership. This transaction structure also added significant value above what a fee-simple sale would have generated.
Define the Programming Needs
After getting both parties on board with the ground lease option, AQUILA worked with LCM to develop an architectural program so that they could effectively go out to the commercial real estate investment community with specific parameters on what they’d like to see developed on the site. With those plans, AQUILA took the property to market.
Market the Opportunity
Our team crafted a marketing campaign specifically targeted to “UNO” buyers – predominately student housing developers. AQUILA was able to achieve multiple competing bids. Our team ultimately helped LCM choose a student housing developer, Inland, that would comply with LCM’s architectural program and provide a financial structure that worked for both groups. Additionally, AQUILA created a condo association on the building so LCM would not have to pay property taxes.
In the end, ECLA received a 5,000-square-foot space on the ground floor of the project, their 25 requested parking spaces, and an upfront payment for the ground lease. Based on their commercial real estate investment, they were able to get a loan to fund the rest of the ministries for the amount that they had hoped to achieve out of the sale. In return, LCMS received a greater portion of the ground lease payment and was able to retain its long-term commercial investment in the property.
Inland built a 19-story multifamily structure on the site that features 504-bedroom units. Now called “University House,” the project was delivered in August 2016 and LCM operates its worship center out of the ground-floor space.
Ready to talk about how to get the best value out of your commercial property?
An AQUILA commercial real estate investment expert is ready to talk to you about your real estate options. Schedule your consultation today.