Multi-family Apartment Building.Approx. 5776 Sq. Ft.6 units | 8 beds | 7.75 baths.320 S Reeves, Beverly Hills, CA.
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.
Our solid reputation in this industry is something that we have spent decades creating. So when we say we want to make a deal, we tie it down and close. We had previously done a deal with this broker and there were certain sensitivities that would have required the buyer (us) of this property to stick through the challenges as the deal was closed.
The cost for us at the time of the acquisition was quite favorable which meant that a good return would be achieved from the start. There were also value add components that enabled us to extract more value out of the deal. Each unit had its own parking which is what the market pays a premium for.
This multi-family apartment unit was covered under rent stabilization so that put a limit on the rental amount that we could increase every year. At that time, this was not as restrictive as rent control so that didn’t deter us since we invest in properties with a long-term view to minimize risk.
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 There was mold, outdated Formica countertops, and floorings that had been laid on top of floorings over the years.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.
We knew that within the next 3-5 years, all rents would gradually be increased up to market level. We set out to update the units and managed them really well. The gradual increase of the rent to market value elevated our bottom line. The units were dated and needed to be revamped, at least cosmetically.
We renovated the units with cool white tiles to achieve a fresh and modern look. Katia Aryeh brought great design ideas to the table. We painted all of the cabinets white to achieve an open and clean look. Added super cool sconces to the units. The yard was cleaned up, the facade was painted and the doors also got a fresh coat of paint. Giving this older building a fresh Mediterranean look was exactly what it needed and the rents we started to get proved that.
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.
Our play here was to add value through renovation. Since the entire building had been acquired at such a great cost due to the all cash offer, we were a bit ahead of the game with returns. In terms of IRR metrics, this was probably one of the best deals we have done. The rents were low so we did make renovations in line with our projections for rental increase.
The entire property was sold 1.5 years after it was purchased for a great return on investment.
The property did have a lot going for it that subsequently made me consider it as an investment property. It’s located next to Beverly Hills with a mall being remodeled right next door. However, compared to others in the area, the building’s common areas and temporary financial and legal problems left a lot of potential buyers on the sidelines.
What made this such an incredible value proposition was the evolving demographic. Lots of young people were moving into the area and that brought an influx of new money and solid businesses. That inspired confidence about property values in the area climbing in the future. Also, unlike many of the other units in the building, the position of this unit within the property undoubtably gave it one of the most magnificent views.
Initially, it felt that the property’s marketability wasn’t good but we did our investigations and found lots of what we call “ingredients” that we like to see when a property has potential that is hard to see. We worked with Slater Development (slaterdevelopment1957.com) who subsequently connected me to WDA Architects (WhittenDunn.com). We drew up some pretty great plans to renovate the unit.
We opened up the walls to get every square inch of space in utility. We redesigned the hallway into a mini-den that eventually became my son’s room. More previously wasted space from the hallway was also utilized to increase the size of the bathroom. New grey tiles were added for a modern look. The kitchen got a thick Caesarstone counter with high-end appliances from JennAir, including a wine fridge, a steam oven, and an induction magnetic range. We gutted it completely, added tons of new cabinets, glass doors, and installed an entertainment system with speakers throughout.
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