Multi-family Apartment Building.4,915 Sq. Ft.3 units | 8 beds | 6 baths.356 S. Doheny Dr. Beverly Hills, CA 90211
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.
We feel that this deal exemplifies why we believe so strongly in a good reputation (insert article of relationships here) do what we do. We already had an indirect relationship with the seller of this unit. They were aware of our stellar reputation so when we made them a fair offer they didn’t hesitate to accept.
This apartment building had a lot that made us excited. The location is great, the property has an incredible floor plan with more interior space than you’d normally expect from a building of this kind. With lots of trees around the property and a unique footprint, each unit felt like a private enclave even though there were other buildings very close next door.
One of the units was severely under market. There was a tenant that had been there over 50 years and the city of Beverly Hills granted them protections. That was completely okay with us because at purchase we saw the investment as a long-term play and inevitably that big upside would be realized.
The financial upside existed not just in the value addition that could be done through renovations but also through an increase in the rental income. We are always surprised when landlords don’t increase rents and by the time they ultimately decide to sell their property, there’s an inherent upside for the buyer. After we acquired the property, the rents were gradually increased up to market value for the units as the opportunity allowed.
Each unit had a private entrance door that made the entire building feel like casitas. Its Victorian façade was especially interesting. Each unit also had a two-car garage.
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 pride ourselves on owing a duty of care to the properties we acquire AND the tenants that live in them.
The front unit in this property had a tenant who had been living here since the 1940s. As a single parent, she had raised 5 kids there, treated the unit like she owned it, and as such, the building was a big part of her life. However, that tenancy was severely under market, at about a shocking 20% (80% below market!) of the prevailing market rate. We had a lot of respect for her and we wanted to honor her tenancy. Since we had a long-term investment view on the property, we were fine with waiting on some of our plans to remodel until she left.
All units in the building were 2 bedrooms with dated fixtures. One of the units had ghastly pink and blue tiles, toilets, tubs, etc in the bathrooms. Heavy appliances and old light switches gave the entire unit a dated look and feel. In the right area, like Beverly Hills, updating these things are part of the value created.
Our philosophy is to always take care of our tenants so we felt that by adding more value to the property, we could provide tenants with a modern living space that would subsequently enable us to bring up the rents to market value. However, part of our business plan had to change since Beverly Hills rent control rules passed with heavy restrictions on landlords. We couldn’t execute on all of our plans, however, because we bought it right and managed it well during ownership, we still managed to sell the building at a very nice profit.
Our conceptual floor plan of two units was to add a bath and transform the den into a bedroom. This improved the marketability of this property as these units could now be advertised as 3 bedrooms instead of 2. An additional bathroom was also a great plus that the market would happily pay a premium for.
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.
We were confident that this had the potential of becoming a very lucrative rental property. However, due to rent control passing, we weren’t able to truly realize the value that we could have created here. Nevertheless, we still sold the asset for a pretty nice return.
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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