The Real Deal Los Angeles

CBRE Global Investors sells HQ in DTLA for $330M

A JV of PNC Financial and Munich’s GLL Real Estate bought the property for $470 a square foot

May 19, 2016 05:04PM
By Hannah Miet

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The building at 400 S. Hope St. and PNC CEO William Demchak

The building at 400 S. Hope St. and PNC CEO William Demchak

CBRE Global Investors sold the Downtown Los Angeles headquarters of its parent company, CBRE, for approximately $330 million in a deal that closed today, The Real Deal has learned.

The buyer was a joint venture between Pittsburgh, Penn., firm PNC Financial Services Group and Munich, Germany-based real estate fund manager GLL Real Estate, said sources with knowledge of the deal.  

The partners bought the 701,535-square-foot Class A office building at 400 South Hope Street for roughly $470 a square foot. However, the deal included credits for free rents, which, if factored in, would lower that per-square-foot price, sources said.

CBREI bought the 26-story property from Tishman Speyer for $238 million, or $339 a square foot, in July 2012, according to CoStar. It was 80 percent occupied at the time of purchase. CBREI increased that rate to 90 percent and renewed the lease of the largest tenant, Capital Group, said ​Philip Hench, a CBREI principal responsible for West Coast investments.

After buying the building, CBREI leased the top two floors to its parent company, CBRE. The real estate giant made that space its global headquarters, as well as the incubator for its creative office space initiative, Workplace 360.

“When we bought it, it was under-amenitized and considered one of Downtown’s second-tier Class A properties,” Hench said. “We wanted to renovate it, lease it and sell it. That was our business plan when we set out and we achieved it.”

Hench said a “macro consideration” for selling the property now was talk that the end of the real estate cycle is nigh. A “micro consideration” was the fact that many DTLA office properties are slated to come on the market, or have been put on the market in recent months.

“We wanted to be one of first as opposed to being on the market at same time as the other properties,” he said.

During CBREI’s ownership of the property, two restaurants entered the Bunker Hill building, which formerly lacked a food option. Valet parking and a conference and office management facility for tenants was also added. A security turnstile system was installed in the lobby, the elevators were modernized and the building passed the test for LEED Platinum certification.

Kevin Shannon of Newmark Grubb Knight Frank and his team brokered the sale to PNC and GLL. The story of the deal was not typical: Shannon and his team sold the headquarters of the company they left earlier this year in order to join NGKF.

Neither of the buyers could immediately be reached for comment. Shannon said the partnership plans to hold onto the property for the long-term.

“It has one of the best rent rolls in the market,” he said.

In addition to Capital Group and CBRE, law firm O’Melveny & Myers is another large tenant at the building, which serves as its headquarters. O’Melveny previously owned the property. It sold it to Tishman in 2005 for $250 million.

“This is another example of foreign capital investing in coastal gateway CBD markets,” Shannon said. “[Downtown Los Angeles’] CBD offers the best discount to replacement costs out of any of the coastal markets, which provides security for the buyers.”

Shannon noted that even prime locations Downtown trade at a substantial discount to the Westside. For example, the Apollo at Rosecrans just sold for $600 a foot, The Real Deal previously reported. Yesterday, The Real Deal reported that another Westside property, Santa Monica’s Colorado Center, sold for more than $900. Meanwhile, Downtown San Francisco’s CBD sees pricing around $1,200, and in Boston’s CBD, it’s around $1,000, Shannon said.

The move by GLL follows a trend of investors and developers rushing into DTLA, in addition to buying trophy assets in other locations throughout the county. The Real Deal recently reported on the biggest foreign investors pouring money into Los Angeles real estate, with Singapore and Canada topping the list. 

 Munich didn’t make the cut this time around, but maybe, if GLL continues investing in DTLA office properties, that will change.