What an Operator Sees
This story is no longer just about office buildings.
It is about how differently buyers are pricing real estate across Los Angeles.
Downtown office towers are selling around $100–$200 per square foot because buyers see vacancy, expensive tenant improvements, broker commissions, free rent, security costs and years of carrying empty floors.
The 1962 office building at 132 S. Rodeo sold for $51.5 million—or $1,725 per square foot.
It is small, private, fully leased according to CoStar and located directly behind the Beverly Wilshire.
Then another Beverly Hills deal appeared.
A mystery buyer has reportedly reserved or agreed to buy an unfinished Aman Beverly Hills penthouse for $200 million, nearly $12,000 per square foot. Traded identifies Jeff Bezos as the possible buyer and It was also whispered to me in an Aman developers meet and greet.
Within a few miles, we now have three completely different markets:
- Downtown office towers: $100–$200/SF
- 132 S. Rodeo office: $1,725/SF
- Aman Beverly Hills penthouse: nearly $12,000/SF
Investors pay for scarcity in Beverly Hills.
The sellers of 132 S. Rodeo appear to have owned the property for more than 30 years.
We do not have their original purchase price. But if they paid approximately $4 million with 40% down, they may have started with $1.6 million of equity.
They sold for $51.5 million.
That could represent nearly $50 million of equity and roughly a 31× increase before counting decades of rent.
Because the building is in Beverly Hills instead of LA City, they have avoided approximately $3 million in ULA.
CoStar identifies Investcorp as the true buyer, while the recorded purchasing entity is Relucin LLC.The current rent information does not appear to support the $51.5 million price as a normal income investment.
At $10/SF per month, using the same expense assumption, the return may reach approximately 4.2% before debt. To earn a 5% return, the entire building may need to average approximately $12/SF per month. A $37.1 million Bank of America line of credit was recorded with the transaction.
The current income still does not appear to explain the price to me.
Downtown is being priced around the cost and risk of operating large office towers.
Beverly Hills is being priced around what wealthy buyers may pay for scarcity.
I'm researching the market to make better investment strategies. I'm sharing what I find along the way with other investors to have discussions, debates and help make better decisions.
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Property and transaction data: CoStar Research. Additional Aman Beverly Hills reporting: Traded Media and The Wall Street Journal.