The real estate action in Clifton continues hot and heavy with the sale of The Comfy Cow building to Louisville-based investors.
The 4,600-square-foot complex at 2221 Frankfort Ave. on one of Louisville’s busiest independent restaurant strips has sold for $700,000 to C & P Real Estate, the Louisville-based investment arm of the Pagano family.
The deal closed this morning, said Reed Weinberg, president of PRG Investments. PRG was both the listing broker and agent for purchaser, Weinberg said.
Comfy Cow owners and founders Tim Koons-McGee and Roy Koons-McGee sold the property to raise capital to expand their chain of upscale ice cream parlors.
In the deal, termed a “lease back,” Comfy Cow’s retail store and commissary operation will remain as tenants, with C & P Real Estate now their landlord, he said.
The deal started when Comfy Cow approached PRG Investments looking for ideas about how to monetize the real estate while remaining in the building, Weinberg said. There is considerable overlap between buyer and seller and broker.
PRG Investments CEO & Chairman Fred Sutterlin and Peter Pagano, who is both part of the C & P Real Estate partnership and a PRG representative, worked with him on the transaction, Weinberg said. “Fred Sutterlin really worked closely with Chip Hamm of The Comfy Cow to provide some consulting services on how to best monetize their real estate.”
The Koons-McGees, married business partners, have entered a partnership with investor and retail consultant Hamm, who also is affiliated with PRG.
“We’re really looking to grow,” Tim Koons-McGee said. That growth includes using the equity from the sale to move into franchising, Koons-McGee said, with legal documents nearly complete.
Comfy Cow currently has three locations – Clifton, Westport Village and at the University of Louisville. They also sell ice cream to 25 restaurants, he said.
Plans are for the company to open a New Albany store in spring, 2014, along with two more Louisville locations next year, Koons-McGee said.
The sale also will allow Comfy Cow executives to begin looking at franchise deals for nearby markets such as Nashville and Lexington, as well as consider proposals from investors in Houston, Charleston, S.C. and other markets.
“People come here and they say, ‘We need one of these in our town,’ ” Koons-McGee said.
The Comfy Cow transaction is the latest in a number investor-driven deals in Clifton dating back to a Gill Holland-led 2011 redevelopment of an old firehouse into the Silver Dollar Saloon, and Gant Hill and partners’ million-dollar makeover of the Flats on Frankfort apartment complex earlier this year.
Single tenant, triple net lease back deals are increasingly popular with investors, Weinberg said, because they have a lower amount of risk since the real estate comes with a long-term lease and a solid cash-flow/return.
Moreover, because the tenant is responsible for taxes, maintenance and insurance – the three “net” expenses in a triple-net deal – the buyer has fewer responsibilities.
Weinberg declined to give the Comfy Cow lease rate or the capitalization rate – essentially the rate at which the investment will pay for itself based on lease schedules – but said it’s “sub-8.”
A developer who does a deal for a large national credit tenant such as Walgreens could see a cap rate of 5, with the developer recouping initial capital within five years.
This deal includes subtle differences, mainly that the seller/developer-turned-tenant is a small, locally owned franchise with a unique infill urban location.
Most triple net deals involve developing a standalone restaurant or drugstore in a suburban strip mall.
“The sale – leaseback option is a very common way for restaurants that own their own real estate to finance growth, but this was a little more challenging since it’s not your traditional single-tenant deal,” Weinberg said.
Cap rate doesn’t take into consideration property appreciation, Weinberg noted: “In single tenant deals, you’re buying the cash flow. There’s not as much concentration on the value of the real estate.
“In this case, (C & P Real Estate) is not just buying the rental stream, (they’re) buying a great piece of real estate. “That’s what made this deal unique.”
IL reported back in May that the property was for sale for $725,000.
“It generated a fair amount of interest,” Weinberg said. “We knew it would (sell to) a local investor who knew about and appreciated the building.”
The complex is two buildings; an original Victorian building “that is functionally new,” he said, and an addition built by Comfy Cow’s founders.