Advisory and Resolution – Santa Monica Redevelopment

Challenge – Lineage Asset Advisors was hired through a real estate attorney to assist two tenant-in-common multi-generational owners in mediating a disagreement on a piece of land in Santa Monica.

The tenant-in-common owners were unrelated second generation owners that inherited their TIC interests in the property. The two owners had been in disagreement for some time about what to do with this valuable asset in Santa Monica. The minority TIC interest wanted to sell the asset and liquidate while the majority TIC interest was uncertain about what direction to go and had a sentimental connection to the asset. The property had been leased for nearly 50 years to an existing use that was under market and not necessarily the highest and best use for the property.

Solution – Lineage provided a deep due diligence and Portfolio Assessment on the land in Santa Monica, analyzing everything from the existing rent that the tenant was paying to the highest and best use redevelopment potential of the property given it’s outstanding location in Santa Monica. Lineage interviewed both owners to understand the dynamics and rooted conflict so that they could make informed recommendations to both owners on strategies with the site that met their goals. Lineage provided strategies to hold and enhance cash flow with existing tenant, joint venture with development partners, or dispose of the asset and part ways.

Outcome – Through Lineage’s work with both owners the team was able to negotiate a 5-year lease extension with a 20% increase in the existing rental rate with the tenant thus achieving cash flow enhancement for both owners. Further, Lineage was able to structure and negotiate a termination clause 2.5 years into the lease with no penalties so that the owners or future developers had a strategy to exit the lease if and when they decided to redevelop the property. Lineage than mediated a discussion amongst the parties about strategies with the asset and ultimately both parties agreed that they did not want to take the risks associated with self-development and that a disposition strategy was the best route. One of the owners intended to do a 1031 exchange while the other owner intended to liquidate and pay the taxes. Lineage implemented a pre-disposition plan to put together a comprehensive due diligence package on the property. Lineage then ran a detailed Request for Proposal with the top land brokers in Santa Monica to identify the right broker to market the project who understood the owners’ goals. The RFP process yielded three vastly different opinions and perspectives on land value and highest and best use from the brokers.