What an Operator Sees
Downtown office has been smashed. Submarket vacancy sits around 26%, and this tower was at 56%, roughly 400,000 SF empty in one building. That's what forced Manulife to sell after holding it for a decade.
But look at who bought it. Not a private fund. LADWP. When private capital won't touch downtown office, public buyers still need space, and they buy at a discount the open market won't underwrite. LADWP paid $92.5M, about $129/SF, against a $700+ replacement cost. Nobody is building another 35-story Class A tower at that number, which is why this may be the deal of the decade. The reality on office is the all-in cost will be much higher. The building is 56% empty. Add the costs of TI, leasing, and making the building look a little more modern, and the real cost is going to be a lot higher. For LADWP, who just needs the space, it works well. For a private buyer, this still might not be a good basis. There looks to be a trend of owner-users buying office buildings at these low costs.
The lesson for owners. The county assessed this tower at $248M. It sold for $92.5M. That's office down 60 to 70% from basis. Before you mark a half-empty building to zero, find the government bid, agencies, utilities, the county, the state, GSA. They are the buyers in this market.
If you have an office building in LA to sell, send OMs to David@AtlasBrief.La.