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.
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.
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 There was mold, outdated Formica countertops, and floorings that had been laid on top of floorings over the years.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.
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 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.
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.