Land Assemblage Development Project In Warner Center

Warner Center

Property Type: Redevelopment

Challenge

A family had owned and operated their business out of a flex office facility in Warner Center (Los Angeles) since the 1990s. The property totaled +/- 2.53 acres with +/- 53,000 SF of flex office buildings. The property was about 50% occupied because half of the property had recently been vacated by another tenant. The market in this area of Warner Center had been changing rapidly because the City adopted a Warner Center Specific Plan. The Specific Plan allows for high density multifamily and mixed-use development projects in an area that was predominantly made up of light industrial and office buildings. The owner recognized that many of the projects surrounding his property were being redeveloped into higher density developments and also recognized that his underlying land was potentially more valuable than his buildings. The owner was in a transition phase in his career and was considering his options whether it be to develop the property himself, to partner with a developer, or to sell and exchange into another investment. Further, the market for multifamily development in Los Angeles was changing rapidly with increasing interest rates, rising construction costs, potential oversupply of new multifamily units, and forthcoming regulations on development in Los Angeles associated with affordable housing. All of these factors stood to have an impact on the residual land value of the owner’s property.

Solution

The owner first engaged Jeff Gould of Lineage Asset Advisors as a consultant to analyze four different options on the transition plan with the property. Lineage illustrated and analyzed the options for the owner if he were to (1) hold and lease his buildings as is (2) entitle and develop the property himself, (3) partner with a developer, or (4) sell the property and do a 1031 exchange. Jeff worked hand in hand with the owner to show the land use and development potential on the site, analyze the residual land value and financial returns on the property given the market fundamentals, and develop conceptual site plans for the property with the assistance of an architect. Further, Lineage ran investment models to show the returns on the existing buildings if they were to be leased in their current state and compared these returns against the other options. Lineage further worked with the owner to understand his long-term goals with his family, career and cash flow and laid out the pros and cons of each option so that he could better understand the inherent risks and opportunities. After performing this in depth analysis the owner elected to explore two strategies that met his goals; either sell the property and do a 1031 exchange or partner with a developer. The owner employed Lineage to run a targeted Request For Proposal (RFP) process to a short list of the most qualified multifamily and mixed-use developers in Los Angeles and Warner Center. The RFP and due diligence process was established to select the right developer that best understood the development potential with the site, understood Warner Center and was paying maximize value for the land. The RFP left open the possibility of a joint venture as well. Jeff had also recently completed a consulting and transaction assignment on the 3.67 Acre parcel directly next door to this owner’s property. Therefore, in running the competitive RFP process Jeff had a unique understanding of the underwriting and the value potential of this property.

Outcome

The RFP process yielded numerous qualified competitive bids for the property from regional and institutional developers including joint venture offers and outright sale offers. Lineage worked in tandem with the owner to qualify the developers’ underwriting and negotiate the best pricing and terms. The end result was that the developer who purchased the contiguous 3.67 acre property next door (former Wella Site) was the highest bidder with the best terms for an outright purchase. Lineage guided the owner and developer through the negotiation and the due diligence process which included finalizing a sale leaseback so the owner could continue to operate his business until the property is developed. In conclusion, the owner of this property was able to sell the asset and put his equity to work in a 1031 exchange in order to obtain a much higher return on his equity and get his estate stabilized for his future family generations. The developer who purchased the property completed a three parcel land assemblage project which totaled approximately 6.20 Acres of land. The developer plans to develop two mixed-use multifamily projects on both sites over the course of the next few years. Please contact email hidden; JavaScript is required for more details on this project.