Los Angeles Office-to-Industrial Conversion Sells for $40M
The 12-building office asset is within a large, but dated, industrial submarket.
Start Your Application and Unlock the Power of Choice$5.6M offered by a Bank$1.2M offered by a Bank$2M offered by an Agency$1.4M offered by a Credit UnionClick Here to Get Quotes!Atlas Capital has paid $39.8 million for an office property in Los Angeles. The buyer plans to convert the 94,113-square-foot asset and its surrounding 5.4-acre parcel into a Class A industrial development. Newmark represented the seller, a private investor.
Located at 19401 S. Vermont Ave. in the South Bay submarket of Los Angeles, the office property dates back to the late 1970s. Comprised of 12 buildings, the asset is partially occupied by a mix of tenants under a series of short-term leases. The redevelopment will begin after those agreements expire, Newmark’s Kevin Shannon said.
Gaining Popularity
Office-to-industrial conversions may not be commonplace, but neither is the severe shortage of industrial space in Los Angeles’ industrial market. In such a land-constrained metro, it may be one of the best ways at addressing the shortage, though: Newmark estimates 2.1 million square feet of office space has been converted in the past three years in L.A. alone.
The property on Vermont Avenue stands to benefit from such a change. With a location next to the San Diego Freeway’s intersection with Interstate 110, and 13 miles from both the Port of Los Angeles and the Port of Long Beach, it’s hardly surprising that the area is awash with industrial assets. However, most of those structures date back more than 30 years — and as tenants prioritize modern building characteristics above nearly all else, high-quality, new inventory is sorely needed in the neighborhood.
Related Questions
What are the benefits of converting an office space to an industrial space?
Converting an office space to an industrial space can provide a number of benefits, including increased efficiency of operations, improved safety, and increased usable square footage. Wider or deeper bay spacing near loading docks can provide an additional benefit by making loading operations safer and more efficient. Additionally, repositioning a dated industrial facility can be one of the surest ways to earn a strong return on your investment.
For more information, please see What to Know Before Making Your 1st Industrial Property Investment and Value-Add Commercial Properties.
What are the challenges of converting an office space to an industrial space?
The main challenge of converting an office space to an industrial space is that it can take significant resources, both time and money, to make changes to the setup. This is because industrial spaces often require different floor plans, loading equipment, and other exterior and interior considerations. For example, industrial spaces may need to have clear heights and column spacing that an office space may not have. Additionally, industrial spaces may need to have top-of-the-line loading equipment, which can be a significant value-add opportunity for an industrial real estate investor.
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What are the costs associated with converting an office space to an industrial space?
The costs associated with converting an office space to an industrial space can vary significantly depending on the asset and the type of tenant it is looking to attract. Some of the characteristics that are among the most expensive include emergency power generators, additional plumbing, improved HVAC systems, higher floor load capacities (compared to office space), and increased security requirements. According to a report from Colliers, new lab space can cost up to $1,200 per square foot to construct, with an additional $600 per square foot for interior improvements. This is far greater than the high end of the office spectrum in those same top three markets, where office construction costs range up to $850 per square foot for a new building, plus an additional $110 to $315 per square foot for tenant improvements.
What are the zoning requirements for converting an office space to an industrial space in Los Angeles?
The zoning requirements for converting an office space to an industrial space in Los Angeles will depend on the type of industrial space you are looking to create. Generally, industrial zoning regulations differ between light industrial zoning and heavy industrial zoning. Light industrial property uses include packaging, certain types of manufacturing, and distribution facilities, while heavy industrial property uses include chemical manufacturing, mining, and power production. In Los Angeles, the zoning map can be found here. Additionally, you may need to seek special permission to convert an office space to an industrial space, usually through an ancillary use permit. For more information, you can contact the Los Angeles Department of City Planning at (213) 978-1300.
What are the financing options available for converting an office space to an industrial space in Los Angeles?
At Apartment.loans, we can help with all kinds of loans for apartments and commercial real estate in the city of Los Angeles, CA. We work with value-add opportunities, ground-up developments, stabilized properties, and more. We know what it takes to get financed and find the best rates and we can help you get what you need.
The market in Los Angeles is growing by the day and we can help you find the financing that you need before the competition gets too fierce. Depending on the size and scope of the project, you may be able to finance your conversion with a conventional apartment loan, Fannie Mae apartment financing, Freddie Mac apartment financing, FHA/HUD financing, mezzanine financing, CMBS loans, bridge loans, or apartment construction loans.
When you’re ready to talk more or get started on your investment, contact our Los Angeles Apartment Lending Specialists today at [email protected] or by calling (800) 567-9631.
What are the tax implications of converting an office space to an industrial space in Los Angeles?
The tax implications of converting an office space to an industrial space in Los Angeles will depend on the specific details of the conversion. Generally, any costs associated with the conversion, such as construction costs, legal fees, and property management fees, can be deducted on Schedule E of the tax return. Additionally, any wages paid to employees or independent contractors will also be tax deductible.
In terms of rental upside, Los Angeles is a major life science market and rents have been growing significantly. According to a report from Colliers, rents grew by 7.2% between the fourth quarter of 2021 and the first quarter of 2022. This is likely to continue to increase as the year progresses due to the lack of available space in the market.
Overall, converting an office space to an industrial space in Los Angeles can be a lucrative investment, as long as the costs associated with the conversion are taken into account.