Retail / OfficeAPPX 2,700 Sq. Ft. RetailAPPX 2,755 Sq. Ft. Office256 26th St, Santa Monica, CA 90402
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.
Since we didn’t need to be paying rent as a tenant in another location, even if we were in the red by that amount on this building, the benefit of not paying rent anymore and owning a building with a lot of upside made it a worthwhile investment.
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 There was mold, outdated Formica countertops, and floorings that had been laid on top of floorings over the years.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.
Before accepting the offer, the family had revealed that the permits they had obtained would expire within a month. So we had to be sure that we could at least get the footings ready for inspection by then otherwise the permits would be lost.
The builder was confident that it could be achieved within the month, therefore, construction began soon after the land was sold and the footings were ready by that time, enabling us to continue with the construction without losing the permits.
We knew that because of the location, the building that would be constructed here is going to have a lot of upside. The plans were improved upon to add more value to the property with additions such as elevators, etc.
The idea was to get as creative as possible with the plans to extract the best value out of the property. Ultimately, this building provided us with a great office space and a valuable unit downstairs that was rented to a tenant for over 30% of what the broker-suggested market rates.
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.
I was confident that this building would have a lot of upside, not only because it would enable us to establish offices in a building that we owned, but because it would attract lucrative tenants. That’s why we decided to make an offer on what was effectively an off-market property and despite that, it still had several offers on it.
We were able to win in the end as we ended up offering exactly what the family asked for and were also able to work with our builders to get the footings in within the month so that the permits were not lost.
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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