We are excited to announce the Opportunity Fund’s latest acquisition in Los Angeles’ West Adams neighborhood — a creative office space redevelopment. This property was acquired for $6.8 million and is our fifth Opportunity Fund acquisition along LA’s West Jefferson corridor, joining 10+ other Fundrise projects nearby. We believe this area will benefit from many businesses’ increasing interests in unique, affordable spaces at excellent, central locations.
Business plan
This property is currently occupied, with less than a year remaining on its lease. We intend to use the existing cash flow to help cover costs associated with its maintenance, insurance, and eventual permitting.
We intend to invest approximately $2.5 million into the property’s redevelopment, and we are currently exploring a range of potential redevelopment strategies, including expanding the property’s available square footage by adding a second story. We expect the finished product to be creative office space, a property type that we believe will see growing demand in this area over the coming years.
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
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 low-cost, flexible office 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 expect 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
This property is ideally suited for conversion into a lower density private office, built to suit the needs of a single tenant. In the world of COVID-19, the health/safety benefits of this product include private outdoor space, no shared elevators, corridors, or parking areas, 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 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 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.
