The Opportunity

This 100,000 square foot, five-story building at 888 S. Disneyland Drive in Anaheim had been vacant for seven years after being seized by the California Department of Transportation as part of the freeway widening project of Interstate 5. Due to the decreased size of the property’s parcel after the widening project completed, the parking ratio for the building precluded any tenants from obtaining occupancy permits for the building. However, the property had been purchased by an investment group that had the intent to lease up the building after gaining the necessary permits for partial tandem parking. Although the group had made headway with the processing, they were not located in the immediate area.

After initially calling to assess asking rental rates in the building, Milan recognized the attractive opportunity the property offered and convinced the investment group to sell the property by presenting a non-refundable deposit and proposing a long escrow to allow the owners to find an exchange. During this escrow period, Milan moved into the building after all conditional use permits were obtained and a portion of land was purchased back from Cal-Trans to complete the parking layout. Even before close of escrow, Milan initiated an extensive $6M renovation and re-tenanting of the building, which continued until it reached full occupancy. In addition to the work associated with the re-tenanting the building, there were also entitlements gained for signage on the building facing the 5 Freeway, further adding to the value of the property.

The Results

Within three years from taking over the project, Milan had filled the building to 98% occupancy while avoiding leasing to the mortgage brokerage tenants that had become ubiquitous as a result of the housing bubble. Milan leased to quality credit tenants, and tenants in high growth industries like healthcare, while other landlords filled their building with high profile mortgage operators—some of whom Milan had rejected as tenants for the building. Soon, the sub-prime and other debt markets collapsed, yet 888 Disneyland’s occupancy remained intact with projected rental increases of three percent or more each year over the next 5 years. Milan has received offers for the property more than 50% higher than total capitalization, but because the property currently provides an attractive return for Milan’s investors, they have chosen to hold onto the property for cash flow.