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As part of our broader strategy of investing in emerging urban areas, we’ve acquired a 4,000 square foot commercial building in the West Jefferson area of South LA for approximately $3.5 million. Located just outside of Culver City, we believe this area will benefit from its increasing attractiveness to businesses looking for a combination of unique affordable space and an excellent central location.
Business plan
Originally built in 1959, the property was renovated in 2016 for use as creative office space. The property is currently fully occupied by Fellow, a video production studio, with their lease due to expire in early 2023. This tenant is a great example of the types of creative businesses which are relocating to the West Jefferson area in increasing numbers.
Our goal is to earn rental income for the remainder of their lease, while capturing what we believe will be strong price appreciation over the next several years as the area matures.
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 longer term, we believe that owning lower-cost, flexible office / industrial space 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 to serve as a “new normal” workspace
This property has already been renovated to serve as modern creative office space, built out to suit the needs of a single tenant. In the world of COVID-19, the health and safety benefits of a single-tenant office space with no shared elevators or corridors are a priority for many businesses today. This property is even equipped with private parking in the rear of the building, a prized amenity in this part of Los Angeles. 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.
