Everything you need to know about Blackstone’s Los Angeles selling spree

Jun.June 21, 2017 08:30 AM
Jonathan Gray (Getty)

Blackstone Group’s Miracle Mile office tower is the second L.A. trophy office the firm has listed in a two-week span — and it’s only the latest leg of the real estate investment giant’s veritable selling spree this year.

Blackstone has been cashing out of the L.A. market at breakneck pace. The New York firm sold five major office properties in the area in the last six months. Its combined L.A. payday was more than $1.2 billion, a number that sources said could grow beyond $2.3 billion as the firm rids itself of the last local vestiges of the biggest real estate buyout ever seen, as well as a handful of other properties it acquired during the same era.

Blackstone acquired Equity Office Properties’ assets in a $39 billion leveraged buyout in 2007. About a year before the bottom dropped out of the market, it quickly flipped more than half of the massive office portfolio — selling 41 buildings in L.A. and Orange counties to Maguire Properties — to pay down debt it had acquired. Now, after waiting out the stormy years of the global financial crisis, Blackstone is looking to close the final chapter of its historic purchase. In L.A., recent dispositions from the EOP portfolio have included two Santa Monica office properties at 1299 Ocean Avenue and 429 Santa Monica Boulevard; its two-thirds stake in the Century City skyscraper at 1999 Avenue of the Stars; and a four-building campus at 900, 1000, 1200 and 1255 Corporate Center Drive in Monterey Park.

Backstone is also shopping L.A. properties from the $7.2 billion Trizec portfolio it acquired in 2006 with joint venture partner Brookfield Properties. Douglas Emmett and the Qatar Investment Authority are in contract to buy one of the flashiest assets from that acquisition,the 10-story office building at 9665 Wilshire Boulevard in Beverly Hills, sources recently told The Real Deal. Blackstone had bought out Brookfield’s share in the building, along with several others it has since sold, in 2011.

Still more local sales can be expected, sources said, as Blackstone looks to unload the final remnants of both portfolios. In Los Angeles, the two-building Arboretum Courtyard at 2120-2150 Colorado Avenue in Santa Monica may be next. The partnership between Douglas Emmett and Qatar Investment Authority, which has not been shy about its intentions to scoop up everything Blackstone is laying down, is said to be eying the property.

Some of the remaining assets are already in play. In addition to the 27-story former Trizec portfolio building at 5670 Wilshire, which Blackstone owns outright, the 12-building Santa Monica Business Park at 2850-3420 Ocean Park Boulevard is being shopped, Blackstone CEO Jonathan Gray told Bloomberg. The 38.8-acre former EOP property, where Snapchat’s parent company recently signed a long-term lease, is expected to draw big bids. TRD reported that the sale of both properties is being handled by Eastdil Secured.

Only one final property in L.A. is thought to remain from Blackstone’s Equity Office buyout. That’s the 12-story office building at 700 N. Brand Boulevard in Glendale, sources said. It is not officially on the market, according to some sources, who said it’s just a matter of time. Others said there are rumors it is quietly trading.

Further afield, Blackstone is gearing up to sell several more notable properties from the EOP portfolio, including the Ferry Building in San Francisco, which Bloomberg last week reported could go for more than $300 million, and a 32-story office tower in downtown Boston.

Once all is said and done, sources familiar with the matter said Blackstone will have tripled its equity investment in office properties it bought in L.A. when the market was last at its peak. Based on its recent sales in the region, such a sizeable return is not difficult to imagine. In its EOP buyout, for example, Blackstone nabbed the Santa Monica office building at 1299 Ocean Avenue where the firm has its local offices. Enjoying a discounted price per square foot of about $435 for buying in bulk, Blackstone essentially acquired the Class A property for about $89.5 million. In April, it sold the building to Douglas Emmett for $285 million, or about $1,385 a square foot.

The firm’s recent selloff of office properties in L.A. does not necessarily indicate that it believes the L.A. office market is nearing its next peak, said sources familiar with Blackstone’s real estate strategy. Rather, the rapid-fire dispositions are a reflection of the way Blackstone often structures investment funds with a fixed lifespan. The so-called “closed-end” funds that supported the Trizec and Equity Office buyouts are coming to a close, so the firm is looking to return money to investors, the sources said.

It is unknown exactly when the investment funds end. Blackstone declined to comment.

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