LA office buildings trade for 43% less, biggest drop in the country

As defaults and discounts mount, “we’re expecting to see more buildings surrendered”

Los Angeles; graph lines

Prices for Los Angeles office buildings have taken the steepest nosedive in the nation.

Sale valuations for L.A. offices have fallen 43 percent this year, from $412 per square foot in January to $237 in May, the Commercial Observer reported, citing a study by Commercial Edge.

The plunge in value comes despite the city recording the largest sales volume in the West, with $1.01 billion in closed office deals year-to-date through May. Only New York’s was greater, at $1.32 billion.

Despite the deals, L.A. recorded 47 percent less commercial trade volume than the first five months of last year. 

The cascade in office values was no more apparent than the recent sale of the 40-story Union Bank Plaza at 445 South Figueroa Street.

KBS Realty Advisors, based in Newport Beach, bought the building in 2010 for $208 million, then sold it in March to Westbridge Capital of San Mateo for $104 million, for a 50-percent loss. 

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Additionally, Commercial Observer first reported office towers including the historic PacMutual Building and the 62-story Aon Center have hit the market at huge discounts.

Toronto-based Brookfield, the largest office landlord in the city, has defaulted on more than $1 billion in debt tied to three office buildings Downtown.

“Six months ago, we pointed to watching how lenders behaved in conjunction with borrowers,” Peter Kolaczynski, senior manager for Commercial Edge, said. “Could they work together for an extension? 

“Now it’s reasonable to question if borrowers will be motivated to work with lenders on a solution,” he said. “We’re expecting to see more buildings surrendered.”

— Dana Bartholomew

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