Coming off a major debt restructuring, musical instrument retailer Guitar Center has sold its Westlake Village headquarters to a cohort of investment firms for $19.3 million.

Beverly Hills-based Arise Investments, Oak Park Investments in Westwood and Nebraska’s Nelnet Real Estate Ventures acquired the 98,086-square-foot warehouse property in an off-market sale-leaseback deal.

The sale, announced Tuesday, gave Guitar Center access to the asset’s full equity and a path to consolidating its headquarters, said Danny Soroudi, principal at Arise. 

“It was part of their overall debt restructuring to give them a lot more flexibility and liquidity, and they just didn’t want to own their own real estate anymore,” Soroudi said.

For at least the next three years, Guitar Center will stay on as the sole tenant of the two buildings it has occupied at 5775-5785 Lindero Canyon Road since the early 2010s. The company, which did not respond to the Business Journal’s request for comment on the transaction, also leases office space in a third building in the complex managed by a separate owner.

Strategic initiatives aim to ease debt load

One of the last music retailers left standing, Guitar Center buckled under the weight of the e-commerce boom and pandemic-time disruptions, filing for Chapter 11 bankruptcy in 2020. 

Last August, the company secured a three-year extension to its $1-billion debt, much of which came from a leveraged buyout by private equity firm Bain Capital in 2007. It now has until 2029 to execute on its revamped business plan, including the anticipated launch of an in-house guitar brand and refined product assortments, and pay up. 

Guitar Center Chief Executive Gabe Dalporto told the Business Journal last fall that a return to serving the “serious musician” with an inventive, engaging retail experience was key. Last summer, the retailer’s 300 stores rolled out Rig Adviser, an artificial intelligence-powered shopping assistant that makes gear recommendations.

“Frankly, the company was struggling when I took over as CEO. We were about to deliver our ninth consecutive quarter of negative growth,” said Dalporto, who launched into turnaround efforts when he took the helm in 2023. “If I really boil it down to the simplest terms, the company had forgotten who its core customer was.”

Though the debt exchange and fresh initiatives helped upgrade Guitar Center’s S&P Global rating to ‘CCC+’ from ‘SD,’ or selective default, in August, the credit rating agency still passed concern on the company’s outlook. 

“Although the transaction provides the company with time to execute its strategic initiatives, Guitar Center’s capital structure remains unsustainable given its high leverage and free operating cash flow deficits amid a difficult consumer environment,” S&P wrote in its report.

A deal worth chasing

The investor group that bought Guitar Center’s corporate campus at $200 per square foot plans to hold the asset for five to 10 years, Arise’s Soroudi said. Once the company wants to move out, the firms will either move a new tenant in or sell to an owner-user.

The deal, financed by California Bank and Trust, is Arise’s first in the San Fernando Valley. The property’s location in Westlake Village was attractive, given low vacancy rates and growing demand for flexible industrial space to sustain the region’s biotech and pharmaceutical industries, Soroudi said. 

“Guitar Center right now is really utilizing this as more of an office building for the corporate offices. It’s really, to us, more of a (research and development) lab,” he said. 

Strong fundamentals and the opportunity to present a creative solution that fits investors’ long-term goals made the property – Souridi’s third sale-leaseback alongside two industrial facilities in Arizona – a valuable get. 

“We had been chasing this site for over a year,” he said.