American Realty Scores Promenade Mixed-Use

SANTA MONICA, CA—American Realty Advisors has purchased Criterion on the Promenade, a retail, office and multifamily mixed-use complex on the 3^rd Street Promenade in Santa Monica, from Criterion Santa Monica LLC, a joint venture between Metropolitan Pacific Capital and an opportunistic commingled fund managed by Clarion Partners. The investor purchased the property on behalf of its stabilized-asset investment vehicle. The price of the purchase was not disclosed, however, sources unrelated to the deal tell GlobeSt.com that American Realty Advisors purchased the property for $96.2 million.

"The property was acquired on behalf of one of our vehicles that targets stabilized assets substantially leased to high-quality tenants with long-term in-place leases and limited rollover exposure. Criterion on the Promenade does exactly that," Gary Steinhardt, a senior director of investments at American Realty Advisors, tells GlobeSt.com. "It provides stable and predictable cash flows as well as appreciation through the long-term nature of in-place office and retail leases along with the inflation hedge provided by 32 residential units. The property was completely reconstructed to the highest institutional standards, has a strong rent roll with high performing tenants, and an irreplaceable location. The strength of the location is evidenced by the tenants extremely strong performance which supports our investment thesis in this asset and market."

Located at Arizona Avenue and 3^rd Street in Santa Monica, the property has 30,046-square-feet of retail space, 22,935-square-feet of office space and 32 apartment units, a mix of studios and one-bedrooms. The current retail and office tenants include Victoria's Secret, Brookstone and WeWork. "Our business plan includes lease-up of the recently renovated apartment units that were vacated for construction as well as some targeted improvements to enhance the tenant experience," adds Steinhardt. "We view this as a long-term hold and will patiently wait to capture the upside inherent in the existing leases as we continually monitor the tenancy for opportunities to enhance the performance of the property throughout our hold.  This is an ideal core asset given its effective age of zero, translating to low capital requirement, which in older properties can reduce cash flow from operations by 20-to-40% on a normalized basis."

The property's location adds tremendous value. It has 150-feet of frontage on 3^rd Street, a highly popular retail area that sees 40,000 pedestrians per day, and 150-feet of frontage on Arizona Avenue, and is located three blocks from the ocean. The circa-1920s property was completely renovated in 2015. "Santa Monica is extremely supply constrained and the city's continuing efforts to promote the most appropriate land uses ensure the long term viability and appreciation of a high quality mixed-use asset such as Criterion," adds Steinhardt. "These attributes align very well our strategy, which is to provide our clients with stable cash flow and long-term appreciation while minimizing downside risks." 

American Realty Advisors operates several different investment vehicles focused on different types of opportunities and asset classes. Earlier this year, the investor purchased two industrial properties in the DC area, as one example of the very different types of assets that they will purchase.