Single Tenant Retail Santa Monica – 2800 Wilshire Blvd – Erewhon

Single Tenant Retail Santa Monica – 2800 Wilshire Blvd – Erewhon

Single Tenant Retail
APPX 12,455 Sq. Ft.
2800 Wilshire Blvd, Santa Monica, CA

THE FULL STORY

Spotting Value

1204N was acquired with a view of transforming it into a high end rental or my personal residence. This Bank of America REO 1 bed, 853 sf property was impacted by the fallout of the 2007-2009 Great Recession and as such was acquired all cash on an as-is basis. The building itself was struggling financially with many notices of defaults, making it hard to secure financing but this is often where value can be created.

Spotting Value

2800 Wilshire BLVD was the very first of the commercial assets as the focus had entirely been on apartments previously. After understanding what the going rates were and which locations were good based on an in-depth study of the market, unsolicited offers were made on several commercial properties that held the most potential to attract lucrative tenants.

single tenant retail building, wide exterior shot of erewhon, wilshire blvd, santa monica
multi-family apartment in beverly hills ca, outside front view with side entrances, real estate investment
multi-family apartment in beverly hills ca, outside view of side entrance at night, real estate investment

Investment Outlook

The investment outlook on this property was bright largely due to its prime location, which is why an unsolicited offer was made for it. The high-footfall location on Wilshire BLVD would have been very appealing to tenants.

By virtue of its location, this property would have been able to secure a lucrative long-term lease with a major tenant, thereby significantly increasing the income from rentals in addition to the property value going up.

1200 wilshire
256 26th street

Condition at Purchase

Since it was purchased on an as-is basis, the property’s characteristics at that time weren’t great but we sensed that there was value there to extract. This was a unique unit situated on the 12th floor with a great 180-degree view. It also had a balcony. The banks were assigning value to this unit compared to others but that wasn’t exactly a fair comparison owing to the dynamics at play here. We saw inherent value.

The property’s condition at purchase was less than ideal. There was mold, outdated Formica countertops, and floorings that had been laid on top of floorings over the years. The unit’s hallway was a waste of space that could have been better utilized as closet space (a desperately needed addition) or a small den. Everything was in need of updating but there was plenty of space to execute that plan.

Condition at Purchase

The property had a weak lease at purchase. Supercrown Books, the tenant, had a 10 year lease that was a good 30% below market. The significant rent increase was guaranteed in years 4-5 of the lease in addition to a provision that allowed termination of the tenancy by year 7 if so desired.

However, Crown Books was in reorganization at that time and despite having the option to leave the lease, they chose to continue. The downside was limited because if the tenant did go under, the property could be rented out for a lot more money. The tenant paid rent for less than 2 years before going ultimately under.

How We Added Value to the Property

When Supercrown Books went under and vacated the property, a new tenant was quickly brought on to meet the upkeep expenses on the property. This was done to ensure that the property remained in pristine condition to attract the best tenants.

Due to this, Best Buy ended up showing interest in renting the property and ended up signing the lease for a lot more money than Crown Books. Having Best Buy as a tenant also elevated the overall property value and increased the competition among tenants to lease the space.

1200 wilshire
256 26th street

Our Confidence

Despite the dilapidated condition of the property, we were confident that this was an up-and-coming neighborhood that was evolving into even a more vibrant community. The younger demographic would result in a spike in demand for modern homes.

We capitalized on that opportunity to build out the property and it has eventually proven to be a hidden gem – and honestly one we should have kept.

What We Were Confident About

Despite the dilapidated condition of the property, we were confident that this was an up-and-coming neighborhood that was evolving into even a more vibrant community. The younger demographic would result in a spike in demand for modern homes.

We capitalized on that opportunity to build out the property and it has eventually proven to be a hidden gem – and honestly one we should have kept.

1600 west plano parkway

What We Were Confident About

We were confident about the very limited downside on this deal. Due to the weak lease, even if the previous tenant was unable to pay rent, the property could easily be rented out for more. As the area developed further, the property’s prime location also helped increase its value.

We were confident that the competition from tenants would be there to lease the space, thereby increasing the rental income. It continued to increase as tenants changed over the years with the property ultimately being leased by Erewhon Markets.

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