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THE PROPERTY

A 38,282 SF Flex Warehouse — Former Home of a 92-Year-Old Jukebox Manufacturer — Converted to a Co-Working and Co-Warehousing Facility

The property at 2335 W. 208th Street in Torrance, California is a single-story flex warehouse built in 1989, totaling 38,282 gross square feet on a 1.59-acre site. The building includes 18-foot clear heights, five loading doors, 87 parking spaces, and approximately 8,400 square feet of unenclosed office mezzanine space. At the time of sale, the property was owned and fully occupied by a 92-year-old jukebox manufacturer that had recently been acquired by a luxury goods retailer. As part of the transaction, the seller agreed to a six-month sale/leaseback arrangement, vacating the premises so that renovation could commence.

Following the seller's departure, the sponsor undertook an approximately $2.8 million conversion of the property in partnership with an Atlanta-based co-warehousing operator. The renovated building was demised into 65 individual co-warehousing spaces supporting 103 member subscriptions across 24,224 rentable square feet, and 37 co-working suites supporting 76 member subscriptions across 3,342 rentable square feet. Common areas including reception, a kitchen, conference rooms, and loading areas are shared among all members. Rather than traditional leases, tenants operate on revocable month-to-month membership licenses, reflecting the flexible, subscription-based model that defines the co-warehousing concept.

THE RRA SOLUTION

$8,670,000 First-Position Bridge Loan Financing the Acquisition, Full CapEx Buildout, and Lease-Up Reserves

RRA provided a $8,670,000 first-position bridge loan closing February 26, 2021, structured to fund the acquisition, the entire capital expenditure budget, and operating reserves through lease-up. The loan was structured in two components: an initial disbursement of $5,835,000 at closing, covering the acquisition at 55 percent of the $10,650,000 purchase price, a $300,000 interest reserve, and $175,000 in tax and insurance impounds; and a future funding facility of $2,835,000 to fund the conversion buildout in full.

The loan included an interest rate stepdown provision: once the property achieved a minimum 9.0 percent debt yield on the full loan commitment, the rate spread and floor would each decrease by 50 basis points, directly aligning RRA's economics with the sponsor's lease-up success. The NGKF appraisal placed the as-is value at $10,700,000 and the as-stabilized value at $11,800,000, the latter based on market-rate industrial cash flows rather than Saltbox membership revenue, making it a conservative stabilized underwriting basis. The loan was repaid in full on April 3, 2023, approximately 25 months after origination.

THE CONVERSION

A Six-Month Sale/Leaseback, Two Months of Permitting, and a $2,835,000 Buildout Transforming a Legacy Industrial Building into a Modern Membership Facility

The business plan required careful sequencing. The seller remained in occupancy for six months following closing under the sale/leaseback agreement, giving the sponsor and property manager time to complete permitting, which was anticipated to take approximately two months. Construction commenced once the seller vacated and was expected to take three to six months. The $2,835,000 capital expenditure budget covered structural reinforcements for the mezzanine level, office area buildout, warehouse ventilation, LED lighting, modular walls, building-wide Wi-Fi, access control and camera systems, and a full suite of common area amenities required for the membership model.

The co-warehousing and co-working operator managing the property was brought on at closing under a management agreement. The operator is an Atlanta-based company that had opened its first location in late 2019 and fully leased its 39 warehouse suites within two months, building a waiting list of over 20 prospective members. Its second location, in Dallas, was 30 percent preleased before opening. The Torrance property was the operator's third location, and the sponsor's prior relationship with the operator was a key factor in the underwriting. The operator earns a management fee of 5 percent of revenue, plus an incentive fee equal to 30 percent of NOI above 120 percent of market rent, structuring its compensation to reward performance above a baseline.

THE LOCATION

Within Two Miles of the I-110 and I-405 Interchange, with Direct Access to LAX, the LA Seaports, and Downtown Los Angeles

The property is situated in an industrial park in Torrance, California, within two miles of the intersection of the I-110 and I-405, two of the Los Angeles region's primary freight corridors. The immediate access to the freeway system places the property within a short drive of Los Angeles International Airport to the northwest, the Ports of Los Angeles and Long Beach to the south, and downtown Los Angeles approximately 20 miles to the north. The surrounding land use is predominantly flex and light industrial, and the property's location in an established infill submarket limits the prospect of meaningful new competition. At the time of closing, Amazon was developing a new last-mile distribution center approximately three miles south of the property, an indicator of the submarket's continued appeal to logistics and e-commerce-oriented users.

THE MARKET

Torrance Industrial Submarket: 2.9% Vacancy, Forecast Rent Growth, and a Sales Market Outpacing the Ten-Year Average

The Torrance Industrial Submarket is one of the tighter industrial markets in the Los Angeles Basin. At the time of closing, vacancy stood at 2.9 percent, modestly above the prior year but within the ten-year average and outperforming the broader Los Angeles market vacancy of 3.1 percent. Rent growth had decelerated from 4.9 percent to 3.4 percent in recent quarters, but market forecasts anticipated a significant acceleration as the economic disruption from the COVID-19 pandemic subsided. New construction had been limited, with the pipeline representing approximately 1 percent of total submarket inventory, and net absorption had been positive over the prior decade. On the investment sales side, per-square-foot pricing and cap rates were near the ten-year extremes in the favorable direction, and quarterly sales volume of $1.5 billion substantially outpaced the ten-year average of $995 million, reflecting deep investor demand for the product type.

THE SPONSOR

Vertically Integrated Los Angeles Operating Company with Multifamily and Industrial Experience, Expanding into Co-Warehousing Through an Established Operator Partnership

The borrower is a Los Angeles-based real estate operating company founded in 2013, with offices in Los Angeles and Dallas. The firm provides investment, property, and construction management services and has historically focused on multifamily acquisitions. The Torrance property represented an expansion into the industrial sector through a partnership with the co-warehousing operator. The firm's founders bring backgrounds in private equity, investment banking, and institutional financial services, and have structured and managed investments on behalf of family offices and Fortune 500 companies.

A jukebox factory becomes a membership warehouse. The building does not change. The use does, and so does everything the building is worth.