Retail Office Carmel By The Sea
Retail Office Carmel By The Sea
Retail / Office
Retail APPX 5,880 Sq. Ft.
Office APPX 6,832 Sq. Ft.
Block 70 – 2 NW Ocean & Mission
Carmel By the Sea Property Stagecoach, 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
Carmel is inherently a beautiful and luxurious location. It was obvious that having a commercial building here would be lucrative, particularly since there was very limited retail in the area. This particular building has a prestigious Ocean address and has two entrances from Ocean.
Some if not all of the units can be leased with an Ocean address. It’s a privilege that tenants are willing to pay a premium for.
Investment Outlook
This property’s investment outlook was bright due to its location and vacancy as it had an entire floor upstairs that was empty and it would be all cash flow, helping to offset some of the expenses to be incurred on the property. It was in such a good area that the retail spaces would have a lot of value both now and in the future.
By investing heavily to develop high-end executive suites upstairs, it would be possible to capitalize on the increased demand for office spaces in the area as the supply was significantly limited.
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 There was mold, outdated Formica countertops, and floorings that had been laid on top of floorings over the years.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 conditions at purchase were favorable. Tenants included Tommy Bahama and Hedis Shoes, both with good credit and long-term leases. However, during the renovations on the property, the challenging conditions of 2020 and 2021 significantly changed the demographics of the area.
The average age dropped by 20-25% in the area while dozens of businesses either left or shut down. As the situation improved, over 50 new businesses opened in the area to cater to the younger demographic.
This enabled the property to be brought up to market due to the short supply of office space and since nobody else was catering to the burgeoning demand.
How We Added Value to the Property
Significant investments were made to renovate the property to create high end office spaces with a more modern design and lots of natural light. The idea was to go with a design that would attract a lot of Silicon Valley tech companies that are looking for office space in the area.
The property could always be transformed into fully retail. Initially, the focus was on creating high end offices for now, and with the innovative floor plan that was created, even 10 years down the line the entire property could be converted into retail spaces.
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.
What We Were Confident About
We were confident that the trends would go in the direction of this property. People are now valuing experiential real estate more than ever before. Carmel by the Sea is held by people across the globe in extremely high regard and with the changing demographics, there would almost always be demand for good real estate.
This deal was an opportunity for me to leverage all of the experience in creating high quality luxury properties and bring that to a property Carmel by the Sea where a gap was to be filled as nobody was doing high end office spaces with similar levels of expertise or investment.
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.
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.
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.
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.
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.
