Value-add multifamily in Los Angeles

[Account Closed]

Investment Info:

Large multi-family (5+ units) other investment.

Purchase price: $4,950,000
Cash invested: $1,500,000

24-unit value-add in up-and-coming Los Angeles location. 1920's historic, architecturally significant property. Rebranded as Chateau Westmoreland, restoring original character, but modernizing. Have turned 4 units, increasing rents and are adding storage. Adding value and so far, exceeding projections.

What made you interested in investing in this type of deal?

I know this area and it is poised for growth -- an affordable pocket between Downtown LA, Silver Lake and Hollywood. It's an historically significant property in disrepair, and the seller was motivated, creating an opportunity to buy cheap, and add value to this property that, we predict, if it's restored to it's original character, it would be a coveted residence in an increasingly prime area.

How did you find this deal and how did you negotiate it?

A broker relationship I've had for 15 years, and I've closed on many deals with. He brought it to me and intimated that the seller was very motivated.

How did you finance this deal?

A regional bank, 5-year fixed at 4.5%. Wanted a 5-year term because the we expect to add most value in years 1 & 2, and want to be able to refi with minimal prepay penalty.

How did you add value to the deal?

Turning units in disrepair and upgrading them. The neighborhood supports premium rents. Also used RUBS program, added storage, and are exploring consolidating cable and wi-fi contracts.

What was the outcome?

Work in progress. So far so good...

Lessons learned? Challenges?

Syndicating this deal with first-time partners. We're both experienced and have known each other, wanted to do something together. Partners can be fun when each bring a different area of expertise. ...Our bank was slow with the loan due to the holidays, and whereas most sellers tend to be flexible if they know you're going to close, this one wasn't (I think he was bitter because of the price he accepted). It was a nail-biter. In future, need to negotiate contract extension options.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Todd Sherman at First Pacific Financial is my loan broker, who always delivers.