Fundrise Opportunity Fund Acquires New Asset Near Culver City in Los Angeles

The Fundrise Opportunity Fund has acquired a commercial property in the South Los Angeles area — near Culver City — which we intend to rehabilitate for creative office use. The asset, which is located within a designated Opportunity Zone census tract, was acquired for approximately $2.6 million, and we intend to more than double our basis in the building through improvements as part of our redevelopment plan.¹

Business plan

Our intent is to convert the property to creative office use, to meet the growing demand in the area. With a slew of tech and media tenants increasing their respective footprints in nearby Culver City, we anticipate other tech firms flocking to the corridor as well, to capitalize on the local talent pool and benefits of industry agglomeration. Our plan is to find a well-suited tenant, then execute a tenant-specific build-out to suit their needs.

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. This will include build-to-suit redevelopment of the existing structure. We expect to complete these improvements within the 30-month time frame that is required in the Opportunity Zone legislation.

Why we invested

Growing demand for office space. Our strategy of developing the asset for creative office use is predicated upon the targeted corridor’s growing cache with area businesses — particularly entertainment and technology industry tenants, many of whom are moving out of Santa Monica or Silicon Beach in search of more affordable space. As of 19Q1, Class A office rents in Santa Monica registered at just under $5.70/psf/mo, surpassed only by Beverly Hills, where Class A rents are the highest in the region. By contrast, Class A rents in non-CBD Downtown areas such as the one in which we have invested averaged less than $4.50/psf/mo as of 19Q1.

Offering proof of concept, HBO has announced it will be taking 240,000 SF of office space at Ivy Station, while Sweetgreen intends to move its HQ to West Adams in 2020. This exemplifies the ongoing trend wherein major tech and entertainment tenants are signing significant leases in the East - Culver City / West - West Adams pocket. We believe our investment is poised to benefit as creative office demand continues to push east along this corridor.

There’s good reason for the shift, which was spurred by more than just the area’s relative rent discount. For one, the Culver City corridor offers access to a robust talent pool. While the city of Los Angeles on the whole is home to a plethora of prestigious universities that cumulatively churn out more than 20,000 engineers annually, this area’s proximity to USC is particularly advantageous for local employers, since it serves as an important funnel for the generation of talent. USC enrolls close to 50,000 students in aggregate, with its Viterbi School of Engineering enrolling nearly 9,000 students (roughly 3,000 undergraduate and 6,000 graduate) — accounting for approximately 20% of the school’s total enrollment. Meanwhile, programs aimed at cultivating and nurturing technology-related and entrepreneurial talent are abundant. For instance, USC hosts an annual TAMID Tank, which aims to connect worthy student-led projects with venture capital funding.

As such, Culver City continues to ascend as a technology and startup hub. In 2018, total startup funding in LA topped $4B, which included $100M for a Culver-City based mobile game developer and $60M for a local athleisure company.

Infrastructure improvements and central location. The introduction of the new Metro Expo Line connecting South LA to Downtown and Santa Monica should go a long way toward helping the area build and maintain strong appeal among commercial tenants by facilitating employee commutes. Moreover, soon a new $2 billion Crenshaw/LAX Line will run along an approximately 8.5-mile route in the region, further expanding public transit options for area workers.

That said, the area surrounding the Opportunity Fund asset already offers access to multimodal transit and a number of major arterial routes. In addition to the new Metro Expo Line mentioned previously, the neighborhood provides convenient access to the Santa Monica Freeway, as well as to Interstate 5, which connects area workers to virtually every part of the city. In addition, South LA is proximate to LAX — an important service for mid-sized and larger businesses with offices in multiple states, or smaller high-growth companies that are looking to scale nationally.

On the whole, we’re confident in the acquired asset’s location — which stands to benefit both from significant public investment and rising demand from commercial office tenants — our site improvement plan, and our granular familiarity with the LA market, where we have engaged in a significant number of development and redevelopment projects since our inception.

We look forward to providing updates on our progress at this asset, which we believe constitutes a promising investment for the Opportunity Fund portfolio.