Trading Into a 50% NOI Increase: Sale and Exchange of Pico + Bundy
Background
12121 W Pico Boulevard is a 2-story center located off the corner of Pico Boulevard and Bundy Drive. The center sits in close proximity to the Expo (E) Line Station and the I-10 entrance/exit providing a rare transit oriented center in West LA. At the time of sale, 12121 W Pico Boulevard was anchored by Party City and Marukai Market.
The Challenge
The property’s in-place anchors at the time of sale were Party City and Marukai Market. Party City was on an expiring lease, and Marukai Market was a smaller format Japanese market. With the building itself being an older center with a two-story layout, attracting new tenants requiring modern amenities could be troublesome. Most importantly, the property had limited tenant/lease strength and near-future risk as an income-producing asset. There was large exposure with the eventual lease roll over for our non-real estate focused client.
The Solution
With income and security being the forefront goal, we advised the client to sell the property and 1031 exchange into a higher generating, pure NNN, income-producing asset with passive cash-flow. Due to the glaring weakness of the rent roll, its best attribute was its prime location in the West LA Market. We went to market promoting to investors its highest and best use as a conversion/re-development. While marketing/negotiating the sale of the property with qualified investors, we were simultaneously looking for the perfect asset matching the needs of our client.
The Outcome
After negotiations with many parties (private and institutional), we created a competitive bid environment to arrive at the highest price; however, the transaction relied on finding the best exchange property. Leveraging our relationships in the market, we uncovered the perfect exchange asset - a multi-tenant center with investment grade tenants and a 50% increase in income with term (a true long-term income producing and passive asset). Once finding the best buyer to perform and the 1031 exchange up-leg, we simultaneously negotiated the sale and acquisition of the two properties to close in the span of 1 month.