KC Road Shopping Center: The Money Pit – PART 2
If you followed the first part of this story, you heard about how I went from a fully occupied shopping center to a largely vacant center. In 2008-2010, retail centers were struggling to retain occupancy and stabilize rents across the market. As a result, I put many churches into shopping centers as a stop gap. When a small hispanic church approached me about our space at KC Road, I knew they would be the perfect fit for our vacant basement space. We learned the City Process together, and they built out a 5,000sf facility in our shopping center.
By then, I knew enough about churches to know that they are rarely long term tenants. One of two things typically happens – either they are super successful and want to grow and purchase their own building, or they are not successful and close or merge with another congregation. When we signed the church lease at KC Road, I made sure to let the Pastor know that when he was ready to purchase a building, to come to us first, and we would sell him this property. We had plenty of vacant space for him to grow.
Early on, I made it a point to collaborate with the church, and in turn, they referred us many small businesses from their congregation that leased space in the center. Within the first 2 years, they were ready to start considering a purchase, and approached us about purchasing the property. Knowing that they would need Seller financing, I wanted to make sure that they weren’t getting in over their heads, and that we were setting them up for success.
Instead of an immediate purchase, we offered to hire them as the property manager for 12 months and accrue the property management fees as their down payment. That way, we could both get some experience with how they would operate the property before an actual sale. The experience was great – they filled up the shopping center to 100% occupancy within 60 days, and were extremely efficient in the maintenance and operations. Since they were on site, it was also a big win for preventative maintenance, and overall aesthetics.
At the end of the year, we structured a 10 year seller financed loan, which had to be approved by our lender. We were grateful that the lender, a community bank, was flexible in allowing us to sell the property subject to their first lien rights. Ten years later, in 2022, the church paid off the loan and refinanced the property on their own. Along the way, they acquired other properties using this same strategy, and have grown to be one of the larger congregations in the Olathe market.
Failing fast, failing forward, and learning from others failures has been critical to my growth as a business owner and real estate investor. This is the first in my series on Failing Forward, and I hope you walk away with some great strategies (or pitfalls to avoid).