A community of furnished bungalows in the trendy Echo Park area of Los Angeles exemplifies the importance of private lending.

The Echo Park area of Los Angeles is what people imagine the “LA lifestyle” is all about. Cool, trendy, and hip are just a few words used to describe it.

When Anil Khera, the CEO of Node Living, contacted Arixa Capital, he shared his vision for building a co-living community project in Echo Park. It was clear that what Khera had in mind was not going to be the typical multifamily acquisition/renovation project Arixa often finances throughout Los Angeles.

As Khera explained, “We call it curated co-living, and what we try to do is merge high-quality interior design with the community lifestyle that the co-living movement is all about. You can move into an Instagram-ready apartment and be connected to all the other residents through community events.”

The company already had locations in New York and Dublin,
and this project marked its launch into the Los Angeles market.

The project location was ideal for Node’s concept, but the existing property was far from hip. It was built on a Sunset Boulevard hillside in 1922 and showed years of deferred maintenance.

The multifamily project consisted of six free-standing 1-bedroom/1-bath bungalows and a duplex with 2-bedroom/1-bath units.

Project Scope

The project was a gut-rehab down to the studs that included updating plumbing, roofs, electrical, flooring, fixtures, exteriors, and common areas. Node’s goal was to preserve the Echo Park location’s original 1920s buildings and structures by retaining the Douglas fir ceiling beams and hardwood floors.

Each completed unit was fully furnished with vintage-style, high-end appliances, modern furniture, and decorations (including work by local artists). The property also featured communal decks with grills to encourage a sense of community.

No square footage was added to any of the improvements, although the bungalow layouts were opened from 1/1 to studios. The duplex layout remained the same.

Project Challenges

Although the borrower was experienced in building similar projects in New York and Ireland, this was his first project in Los Angeles, and he did not live locally. To ensure a successful project, Node hired a local builder consultant team to assist with budgets, vendors, and inspectors. This team was instrumental in navigating the many details required to complete the project.

Projects involving 100-year-old properties are not prevalent in Los Angeles. Arixa’s building inspector conducted a site inspection to determine the structural integrity of the existing structures and to confirm that a renovation (not a tear-down) was possible in keeping with Node’s preservation approach. Additionally, Arixa’s inspector determined that the proposed budget was sufficient to create the results Node envisioned.

A key part of the underwrite was the determination of the ARV, which is important in assessing the borrower’s ability to obtain traditional take-out financing. When it comes to valuation, unique projects are difficult to value, and this one was no exception. The furnished units with common area amenities would rent for 50% more than comparable unfurnished units (which was the case when stabilized). Since exact comparable properties weren’t available, Arixa worked with appraisers to find comparable furnished corporate housing to substantiate value. This project can now be used to compare similar projects.

Summary

Although “cool” and ”hip” are great for design elements, they don’t appeal as much to traditional lenders. The capacity of nontraditional lenders that have the ability and flexibility to embrace unique projects is the true value and advantage of private lending.

The success of this project has led to the second Node Los Angeles project, a two-minute walk down the street, financed again by Arixa Capital.

The Node Los Angeles project exemplifies the importance of private lending to developing new and innovative housing in the ever-changing real estate landscape, especially as Los Angeles’ need for housing continues to grow.

Lender // Arixa Capital

Client/Borrower // Node Los Angeles
Location // Echo Park area of Los Angeles

Architecture Style // Traditional

Year Built // 1922

Square Feet // 3,714

Lot Square Feet // 7,824

Acquisition Cost // $1,192,500

Initial Funding // $1,575,000 (75% of the purchase price)

Loan Amount // $1,950,000

LTV // 75%

ARV // $4,300,000 (45% LTV)

Credit Score Considered: // Borrower is a foreign national

Client Borrower Experience Level: // Strong experience with similar projects in the U.K.

Interest Rate: // 8.5%

Loan Term // 12 months plus extensions

Rehab Budget // $648,000

Renovation Line // $375,000

Exit Strategy // Refinance and hold