Cove Capital Acquires Wichita Retail Center for DST Offering Targeting $12.9M in Equity

Cove Capital Investments has acquired Saddle Creek Crossing, a 110,061-square-foot necessity retail center in Wichita, Kan., as the underlying asset for its Saddle Creek Kansas 109 DST offering, a Regulation D, Rule 506(c) Delaware statutory trust targeting approximately $12.95 million in equity from accredited 1031 exchange and direct cash investors.

The Los Angeles-based sponsor acquired the property in an all-cash transaction at approximately $93 per square foot — a price Cove said is well below estimated replacement cost of $180 to $200 per square foot and below recent comparable retail transactions in the region that have traded closer to $114 per square foot.

Dwight Kay, managing member and co-founder of Cove Capital Investments, said the property’s below-market rents are a key feature of the offering.

“With average in-place rents at just $7.71 per square foot while market rents range from $12 to $16 per square foot, we believe there is a meaningful opportunity to add value by potentially capturing mark-to-market rent increases as leases roll,” Kay said. “The property is currently 96.3% occupied in a market where retail vacancy sits at approximately 3%, creating a strong supply-demand dynamic.”

The offering is structured as a fully debt-free investment, consistent with Cove Capital’s zero-leverage DST thesis. Kay said the structure eliminates lender foreclosure risk and differentiates the offering from leveraged DST alternatives that carry balloon mortgages.

Saddle Creek Crossing is located just west of Interstate 35 in Wichita. In addition to the mark-to-market rent opportunity, Cove said the asset includes approximately 4,000 square feet of warehouse space and a 37,000-square-foot vacant land parcel, both of which the firm identified as potential additional net operating income drivers. Approximately 11,168 square feet of leases are scheduled to roll over the next two to three years, which Cove said represents an additional operational value-add opportunity.

Chay Lapin, managing member and co-founder of Cove Capital Investments, said the offering carries the potential for a 721 exchange rollup — a tax-deferred strategy that converts DST interests into operating partnership units of a real estate investment trust — as an optional exit strategy.

“Unlike many sponsors with forced 721 UPREITs, Cove Capital provides investors with full optionality whereby they are able to participate in the 721 UPREIT if they choose to do so, but at their sole discretion,” said Lapin.

Cove Capital principals are co-investing in the offering alongside investors.

Earlier this month, the company fully subscribed its Texas Build-to-Rent 97 DST offering after raising approximately $27.2 million in equity.

Cove Capital Investments is a private equity real estate firm that provides accredited investors with access to 1031 exchange-eligible DST properties and other real estate offerings. The firm has sponsored more than 3.7 million square feet of DST and real estate offerings in the multifamily, net lease, industrial, and office sectors.

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