A hard sell in a hard market
Ryan McArdle, Partner at The Palomar Group, led this deal from its very first sale, and the timing made it a tough one. Retail was still climbing out of the pandemic, and buyers were nervous about anything with tenant risk on the roster. Commons at Magnolia had that risk in plain view. Several tenants at the property were tied to Ascena Retail Group, the parent company behind Catherine’s and Lane Bryant, and Ascena brands were sitting on foreclosure watchlists at the time.
Selling into that environment meant finding a buyer willing to look past the headlines and focus on the fundamentals and upside underneath them. That buyer was Octave Holdings, an Atlanta based group that came to the deal on the strength of the numbers and the property itself.
Octave saw what the headlines were hiding and closed on the property ready to put its own plan to work.
Four years, one strategic bet
Octave Holdings owned and operated Commons at Magnolia for the next four years, and that hold period is where this deal really earned its story. The same retail landscape that had made the first sale difficult turned into an opportunity for a buyer willing to work through it. Octave renewed leases, filled vacancies including a backfill of the BBB space with Michaels, and steadily stabilized a tenant roster that had once looked shaky on paper.
By the time Octave went to sell, the center’s cap rate had compressed by more than 300 basis points from Octave’s original purchase. The sale price reflected a substantial gain over what Octave had paid four years earlier.
The same tenant roster that scared off some buyers in a difficult market became the opportunity for the buyer who was willing to take the strategic risk. The bet that paid off
The second sale, on different terms
When Octave decided to sell four years later, it came back to The Palomar Team to run the process. That decision is the clearest measure of how the first deal went. Octave had watched the team work a hard sale in a hard market and chose to hand them the exit too, with far more upside on the line the second time around. It helped that Octave brought in a partner The Palomar Team had worked alongside for more than 15 years, Scott Henard. Interest was strong from the outset. The team fielded a wide range of offers, ran a full set of buyer interviews, and narrowed the field to a short list of serious contenders. Cove Capital, a buyer out of Southern California with whom Palomar has transacted with previously, came out on top.
The sale closed smoothly, without the tumultuous tenant landscape that had defined the earlier chapter of this property’s history.
Complication. A tenant roster carrying a pending Bed Bath & Beyond exit and Ascena affiliated brands during a difficult post pandemic retail market
Outcome. A four year hold by Octave Holdings that allowed for rent roll stabilization and compression of cap rates by more than 300 basis points
Status today. Owned by Cove Capital, and performing well
Why it matters
Commons at Magnolia shows what patience and relationships can do for a deal. The first sale worked on fundamentals alone, with a tenant roster that needed a fair hearing instead of an automatic pass. The four years that followed proved the risk was worth taking, with cap rate compression and a sale price that spoke for themselves. And the second sale happened because Octave chose to come back, hiring the same team to sell the asset they had bought from them four years earlier.
For clients weighing a similar opportunity, the lesson is that a tough retail environment does not automatically mean a bad investment. Sometimes it means a chance to buy well and let time and effort do the rest of the work. And when it comes time to sell, the relationships built over years in this business are often what separates an easy close from a hard one. Relationships matter when investing today, and relationships matter at Palomar.