(Summary:)
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Hoopsphere offers basketball programs in Fremont, CA. They found the Ivy Group because they knew that the Ivy Group had previously succeeded in leasing a property for the Bay Area’s biggest indoor badminton academy in the Warm Springs District of Fremont, and in assisting to obtain a conditional use permit from the City of Fremont.
The first time Hoopsphere showed up at the Ivy Group’s office, they were running basketball programs at several leased spaces in a church and other facilities. As they grew, they desired to have their own space and control of scheduling. After some preliminary discussions, Tim Vi Tran, SIOR, CCIM, and CEO of the Ivy Group found out that they needed to grow more revenue to buy a multi-million dollar property.
Two years later, Hoopsphere came back after about 100 students signed up for their basketball programs, with a waiting list. They were ready and qualified financially to buy a property, but were unsuccessful in finding the right property after first looking for one themselves, then through several other brokers.
Tim recalled: “Immediately we started to do a target search survey, where we honed in on specific properties that had the right zoning. From our experience, zoning was key: even though a warehouse with high ceilings was what they were looking for, most warehouse zoning typically prohibits indoor recreational sports, especially involving sensitive populations, such as young kids.
“Another challenge is that most warehouses have limited parking spaces, unlike retail or office buildings, even though warehouse price per square-foot is probably the most economical versus an office or retail building.
“And then my deep connections with the community over the years miraculously paid off with the right opportunity at the right time. One of the board members on the same nonprofit organization that I served as a board member came to me, and said that he had a friend with a property in Warm Springs, who would like to sell it.
“I realized that it was the right property both price-wise and location-wise for Hoopsphere’s needs. They needed to be near freeways. It was right off the 680 and 880 freeways. Coincidentally, it is next to the California Badminton Academy, which we have experience in working with the city to convert from industrial to indoor recreational use. So we did two deals back to back within the Fremont industrial zone.” Tim said.
Tim continued: “My fellow board member mentioned this property to me on a Friday afternoon, and I presented it to Hoopsphere Friday evening. I told them that this property is going to market next week, and there will be multiple buyers going after the same building and they’d better make a quick decision over the weekend. Hoopsphere thought about it literally for one day, and they decided to make an offer.”
“I told Hoopsphere: Look, you don’t want to just make a low ball offer, because if the seller doesn’t like your offer, he might just take a chance with the market for the highest price with multiple offers”, said Tim.
At that time, the commercial real estate market was pretty strong. Market inventory was tight. “The good news is, we found this property off-market. Had it hit the market, we knew that there were other people looking for this type of property in that area with that type of zoning, and it would have been a bidding war that probably would have raised the price a lot higher,” recalled Tim.
Upon Tim’s advice, Hoopshere decided to make a market rate offer, and presented the seller with proof of funds. They showed enough financial information and made a very strong offer that assured the seller’s confidence in them. The Ivy Group helped Hoopsphere structure a deal that the seller accepted.
“Saturday, we presented an offer to the seller, and Sunday we had it locked up in contract. It was that quick,” said Tim. “They didn’t waste any time because they knew what they were up against. They had been looking for years. If they let this opportunity go, if they don’t treat it seriously, they will go back and keep looking for more years. Who knows when the next property will turn up?”
“The fact that it only took two days to be in contract shows that Hoopsphere was a seriously motivated buyer. And we avoided a bidding war,” said Tim.
But two challenges needed to be resolved: parking and the ceiling height.
To get enough parking spaces based on the use, the Ivy Group helped them ask surrounding neighbors to lease their spare parking spaces to Hoopsphere at a low monthly fee with a renewable annual lease, to satisfy the parking requirements for the city permit.
The ceiling height at the time was only 16 feet. To increase it to 26 feet for basketball courts was a challenging and expensive endeavor. To reconfigure the building, they needed to bring in a contractor to take off the roof and add an additional 10 feet of height to the walls. That was over a million dollar build-out budget for a less than $4 million property.
They also wanted to expand the footprint of the building by adding 2,000 square feet to the original 14,000 sq ft property, to maximize the number of basketball courts in that space. Today, when you go inside the building, it looks beautiful. Nobody can ever imagine that it used to be a machine shop with transformers and installations in the middle of the main floor. To achieve this transformation of the property, Hoopsphere had to overcome many hurdles.
“Because of zoning, parking, and permits, the city got involved. To build out, the architect got involved, the contractor got involved, and a whole slew of vendors got involved. Without a path to getting the improvements done and getting permits approved, you don’t close on a deal like this unless you know there’s a path to success.”
“The real estate agent is the quarterback that needs to understand every aspect of all these different moving parts that are happening dynamically. Imagine if I say, ‘go ahead and close this deal and don’t worry about the parking and the permit.’ I don’t see how the lender can approve this loan – We just don’t do that to leave our client hanging like that. We make sure that all the major elements are going to fall into place before we have the confidence to say, ‘Okay, remove your contingency and close this deal.’ It really is teamwork.”
Architect and Contractors: The Ivy Group introduced them to the architect, and the architect brought in contractors who knew how to work with the City, and designed the build out so it would please the City.
City of Fremont: The Ivy Group helped Hoopsphere go through the whole application process with the City of Fremont to get the approval for a conditional use permit.
Appraiser, environmental assessment:
The Ivy Group introduced Hoopsphere to appraisers and the environmental consultants that are required for loan applications.
“We also introduce them to lenders. They went after a SBA (“Small Business Administration”) loan. This is a government program that’s very popular with businesses who are cash strapped, since they only need to come in with 10% down for an owner occupied building. And in this case, Hoopsphere knew that they were going to spend over a million dollars in tenant improvement, they wanted to use the least amount of cash for a down payment.”
The Ivy Group helped Hoopsphere connect with lenders. Because of the complexity in adding improvement costs, the lender needed more time to review the loan, refinance, and figure out how to structure the loan. Oftentimes, sellers are reluctant to grant multiple extensions during escrow but The Ivy Group strategically negotiated additional extensions during the escrow period in order to give the lender more time to approve this loan.
Multiple extensions: Hoopspherer needed multiple extensions because initially they didn’t realize that the build-out is going to be that extensive. Hoopsphere almost walked away because of the added cost. But the Ivy Group figured out a way to make it possible. “Since Hoopsphere really wanted their own space, and believed in themselves, we believed in them, and the lender believed in them, the loan eventually went their way,” said Tim.
Coordinating with lenders: The process involved a bridge loan for their million dollar build out, then lumping it into a loan consisting of 50% traditional bank loan, 40% SBA government debenture that got packaged up and sold to investors, and 10% down payment from the borrower. Tim continued: “The Ivy Group focuses on the real estate aspects only but we have to understand how lending works. We always coordinate with the lenders in order for us to be able to understand and structure the deal.”
“When the lender came back and said they needed another 60 days to underwrite the loan to go through some committees and get government approvals, we worked closely with the bank in order to be able to close the deal. It’s teamwork.”
“We closed this deal in 2019. When it was ready to open, COVID-19 hit in March 2020. The facility was newly improved but was closed during lockdown. But the Hoopsphere was very resilient. They overcame it, and now they’re a thriving business,” recalled Tim.
The City of Fremont liked the project because it generated business tax revenues from Hoopsphere, and also other mom and pop shops that cater to the families that drop off their kids to Hoopsphere, all making the community thrive commercially.
“Everybody won: the seller was happy. The buyer was very happy. The city was happy, and most of all, the people in the community were happy. We’re happy that we’re able to help them.
“This deal started with community connections. The guy who brought this to me was serving on a board of a community nonprofit organization with me. Hoopsphere filled the need for the community with their basketball programs. I love these kinds of projects and transactions.”
“Every time I see the two owners of Hoopsphere, they tell me with gratitude that they couldn’t have done this without us. I’m so happy to hear that. It makes me feel really good that I’m able to help out. We love going above and beyond. We are always in it with our clients for their success. We’re in it for them.”
With a beaming smile and a twinkle in his eyes, Tim continued: “Back then, when I helped Hoopsphere with this deal, my kids were not born yet. Now my 8-year-old and 5-year-old daughters are learning to play basketball at Hoopsphere to learn how to be mentally and physically strong. I never in my wildest dream could have known that my own kids would benefit from this!”
“Back then, Hoopsphere told me that what they were building was more than just a basketball program. It’s really a community oriented place, dedicated to helping kids become the best version of themselves. My kids have become a lot more confident from playing basketball. It is a team sport, so you learn to engage with people. Learn to win with grace, and if you suffer a loss, it’s okay. You bounce back. And you help a struggling teammate. In this regard, playing basketball is a mirror and metaphor for life. And that’s the reason why I sent my kids there. It wasn’t because they were my client. They actually had a great program and a really great vision,” said Tim.
This case study is also about building community. The Ivy Group has played a part in building the community, above and beyond being just a broker for real estate. Through successfully introducing a very important part of community life to the young people, they strengthened their community, and unintentionally benefited Tim and his family as well as the families of the Ivy Group members.
Coming up next: The story of helping the California Badminton Academy to lease a commercial property.
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