This is our fourth acquisition, and it is located in a high-demand area poised to benefit from the neighborhood’s development boom.
We are excited to announce that the Fundrise Opportunity Fund has acquired another mixed-use property in the West Adams neighborhood of South Los Angeles — near Culver City — which it intends to rehabilitate for creative office and/or retail use. The asset is located within a designated Opportunity Zone census tract and was acquired for approximately $6.3 million. We intend to invest approximately $3.2 million (which will more than double our basis in the building) into improvements as part of a long-term redevelopment plan for the property.
The West Adams area continues to expand and become a major tech and media hub, and we expect this trend to continue for the foreseeable future. With that in mind, we intend to convert the property from its existing industrial use to a mix of creative office and retail space in order to meet the growing demand in the area. Our initial plan is to find a well-suited tenant(s) and then execute a tenant-specific build-out to meet their needs.
The property is strategically located next to an industrial warehouse that the Fundrise Opportunity Fund acquired earlier this year. After this purchase, the Fundrise Opportunity Fund will now have ownership of five adjacent parcels on Jefferson Blvd, constituting an entire city block. This not only allows us to curate the right retail / office mix on the block, but also provides us with greater redevelopment potential over the long-term due to the total size of the combined lots. While our initial plan is to repurpose the asset for office / retail use, controlling the block provides us with the option to potentially undertake a more extensive redevelopment into a multi-story mixed-use project in the future. This also gives us the option to market the sale of this investment more favorably upon the end of our intended hold period. As the neighborhood continues to mature, the increased flexibility that we now have in redevelopment strategies is expected to help mitigate the risk profile of the project and potentially produce greater overall returns than either of the assets may have achieved alone.
Pursuant to the stipulations of the Opportunity Zone legislation as outlined in the Internal Revenue Code section 1400Z-2 and clarified by the IRS, we intend to substantially improve the property by deploying capital in excess of our cost basis in the building. We expect to complete these improvements within the 30-month time frame required by Opportunity Zone legislation.
Why We Invested
The mixed-use zoning and recent increase in demand for Jefferson Blvd affords us flexibility in choosing tenants. As more established submarkets within Los Angeles become increasingly expensive, commercial tenants are moving from expensive areas such as Culver City, Playa Vista, and Santa Monica to neighborhoods that offer more affordable space.
This property is located just four miles east of Culver City, which continues to grow at a strong pace. Amazon Studios, Apple, and HBO are each in the process of opening major offices, which we expect to drive demand further in the immediate and surrounding areas increasing overall property values and rents along the West Jefferson corridor.
Additionally, the area is in the midst of a development boom that may support rising property valuations in the years to come. For example, the Wrapper – located just a few blocks from our property – recently began construction. The high-rise tower, designed by renowned architect Eric Owen Moss, comprises 17 stories of creative office space. We expect major developments like this one may bring additional jobs and wage growth to the area, as well as strong appreciation in office rents, which should inherently support our value-add strategy for this asset.
Thanks to a variety of factors, including large companies opening major offices, an expansion of the LA Metro system, and retail and office tenants increasingly being priced out of more established neighborhoods, we believe that the West Jefferson / West Adams neighborhood is poised to experienced outsized growth over the next ten years.
On the whole, we feel confident in the location of this asset and our ability to execute based on our experience in the broader Los Angeles market, where we have engaged in a significant number of development and redevelopment projects since our inception.
We look forward to providing updates on the progress of this asset, which we believe constitutes a promising investment for the Fundrise Opportunity Fund portfolio.