6400 LAUREL Canyon
From 40% occupancy to 95 % occupancy, plus 20% higher rents in less than 2 years.
The office building at 6400 Laurel Canyon presented an attractive opportunity in an incredible area. North Hollywood area boasts one of the highest population densities in Southern California, and by extension, the U.S. The intersection of Laurel Canyon and Victory in North Hollywood has an average daily car count of 43,000 and is located just two blocks from the 170 freeway. All of these factors combine to give real estate in this area intrinsic value beyond most locations.
This property, however, had been purchased by the previous owner at the height of the dot-com bubble with rental expectations that were too high. The ownership, consisting of an out-of-the-area sponsor, with an out-of-the-state investor, and a leasing team from the Westside of LA, needed to sell. At 60% vacancy in a 92% occupied market, it was clear that the property needed a new strategic direction.
Milan purchased the property after a thirty-day escrow and set to work implementing a program of small spec suite development and aggressive initial move-in incentives. By December 2006, 30 months after Milan's purchase, the property boasted 95% occupancy with rents 20% higher than forecasted.
In two and a half years of ownership, Milan stabilized the property, returned more than 100% of the initial invested capital to investors, and expects to raise net income over 25% through the next five years as a result of scheduled rental increases and favorable tenant rollover rates. The property was refinanced in 2006 with low interest rate CMBS debt. Milan and its investors have received offers to purchase the property at prices 70% higher than their cost basis in the property. With the effects of leverage, investors would have achieved a 59% IRR if they had chosen to sell, but with upside left to achieve at the property, and with the property still valued well below replacement costs, the investors remain in this property for the long term.