We’ve invested roughly $3.1 million to acquire a 7,000 square foot (0.16 acre) parcel adjacent to two other properties we already own in the West Jefferson area of South Los Angeles. We believe this area will benefit from an increasing attractiveness to businesses looking for a combination of unique, affordable space and an excellent central location.

Business plan

With this acquisition, we now own an entire city block, and are able to provide necessary parking to the two currently improved 11,000+ square foot commercial buildings. Owning the entire block creates both near-term and long-term opportunities to reimagine the space into a unified concept that has the potential to be more valuable than the sum of its parts.

In the immediate, we are exploring a range of potential redevelopment options and expect the finished product to involve some combination of creative office and/or retail use — asset types for which we expect to see growing demand in this area over the coming years. Over the long-term, the full block, single-story footprint has the potential to provide attractive upside through the eventual vertical development of the site.

We paid a total of roughly $17.8 million to acquire the three properties, and anticipate spending an additional $5 - 6 million on development and renovation costs over the next two years.

Why we invested

While the extent of the negative impacts of the pandemic on the broader economy remains uncertain, we believe this investment is well-positioned not only to withstand a prolonged economic downturn, but to potentially benefit from more permanent shifts in behavior that may result.

Over the long term, we believe that owning lower-cost, flexible properties in South LA carries the potential for strong returns. This is due to two main factors:

1. In-home entertainment industry booming in Culver City

The Culver City area is home to Amazon, Apple, Netflix, and HBO's digital content production arms, groups that we expect to continue to grow as demand for streaming video and similar in-home entertainment is only accelerated by social distancing. It’s reasonable to suspect that Culver City and the surrounding neighborhoods could become the national hub of streaming digital entertainment over the next several years. This should bode well for creative office, housing, and retail property demand.

2. Well suited for conversion to a “new normal” workspace

The combined property, consisting of two mid-century warehouses and a parking area, is well suited for conversion into a lower density private campus, built out to suit the needs of one or two tenants. In the world of COVID-19, the health and safety benefits of this product include no shared elevators, or corridors, and easy implementation of touchless access. High ceilings and ample square footage enable a business to have their office and industrial space under a single roof. All of this affords companies a level of privacy, flexibility, and control that would be difficult to match in a traditional downtown office tower, not to mention likely at a lower price.

Finally, like most of our equity investments in development, we own this property outright with no debt, so the risk of loss due to foreclosure (one of the primary ways that real estate investors risk losing principal during a financial crisis) is essentially non-existent.

As always, if you have any questions or feedback, please visit our help center or reach out to us at investments@fundrise.com.