Lion Real Estate Group sells Arts District property for almost three times what it paid in 2013

Meanwhile, as prices escalate, the AD still lacks an anchor office tenant

May.May 27, 2016 11:09 AM

In 2013, Lion Real Estate Group purchased two 1920s era warehouses in Downtown L.A.’s Arts District for just under $5 million.

Three years later, Lion sold the buildings at 2014-2020 and 2028 East 7th Street for nearly thrice what it paid. ASB Real Estate Investments, a subsidiary of B.F. Saul Co., bought the two buildings for $14.9 million, or a whopping $665 a square foot, in a deal that closed Thursday, The Real Deal has exclusively learned.

Lion, helmed by Jeff Weller and Mory Barak, fixed up the property, which was half vacant at the time of purchase, cleaning up old exposed ceilings and adding modern lighting. Then it fully leased the site to actually-artsy tenants using the space for both office and retail: the Australian fashion label Black Milk Clothing and the film production company All Day Everyday. It built out the space further to fit those tenant’s specifications.  

Weller stressed that Lion sold because the firm specializes in value-add investment, and had completed its plan to shape up the property, not because of any fear about the Arts District’s viability, which has been a subject of debate as of late.

He did not know the buyer’s plans, but expects that ASB will hold the property for some time, given the quality of tenants and the fact that rents in the area are reaching $3.50 to $4 a square foot, he said.

“We debated keeping it for the cash flow, but we thought it was a good time to sell it to someone with a long-term plan,” Weller said. “It wasn’t because of the market. We still own 100,000 square feet in the Arts District, between the Hyperloop Campus, the Better Life Organics building and the Splits 59 building. We plan on being aggressive in the Arts District, and acquiring more in the near future.”

ASB, which is also developing the large At Mateo project in the Arts District with Blatteis & Schnur, could not immediately be reached for comment.

Mike D. Smith and Armen Kazaryan of Lee and Associates brokered the sale to ASB. The brokers did not immediately respond to requests for comment.

Among other factors, the buzz around Soho House opening a “Soho Warehouse” location in the Arts District has driven prices sky high. Per-square-foot building prices nearly tripled in the southern corner of District immediately surrounding the would-be Soho House before the deal even closed.

When the Soho rumors began to circulate in the first quarter of 2015, buildings were trading for an average of $242 a square foot. By the time those rumors became a reality, when the sale closed in November 2015, buildings were trading for an average of $655 a square foot. If the ASB deal is any indication, they have continued to increase since.

However, sources told The Real Deal Soho House’s Arts District project may be on hold as the company works out its finances.

Another yet-to-be-determined element in the Arts District is that it lacks a major office tenant, despite all of the creative office projects underway in the area.

“The Arts District has yet to see a big anchor tenant,” Jeff Rinkov, the CEO of Lee and Associates, told The Real Deal at the ICSC conference in Las Vegas on Tuesday. “Usually vacancy drives up rents, but in the Arts District, it’s spreadsheets that are driving up rents.”

The biggest creative office development in the works is Shorenstein Properties’ renovation of the Ford Factory building, which is adjacent to the property ASB just bought from Lion. After months of discussion between New York-based media company Buzzfeed and Shorenstein over leasing most of the 300,000-square-foot building at 2060 East 7th Street, the deal failed to close and both sides walked away late last year. Buzzfeed ended up leasing shorter-term space in Hollywood and there has been no leasing news from the Ford Factory since.

When a major tenant does come, Rinkov predicts it will be a company in the media or entertainment sector, not a tech tenant.

“The tech guys are really happy in Silicon Beach, which has the infrastructure for them,” he said. “But media people want to be close to the studios in Burbank and Hollywood, and close to their homes in places like Silver Lake and Eagle Rock. The Arts District [works] for that.”

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