Los Angeles Office Distress

Two value haircuts and a discounted sale. That’s the news out of a distressed Los Angeles office sector.

Let’s start downtown, where it hurts the most.

The 21-story Wedbush Center was recently appraised at $60.5 million compared with a $197.5 million value at loan issuance. That’s a 69 percent decrease in seven years, meaning the office tower is worth less than half the $128 million debt connected to it and less than the $196 million Cerberus Capital Management purchased it for.

The commercial mortgage-backed securities debt backing the Class A offices at 1000 Wilshire Boulevard landed in special servicing after missing a March maturity date. Occupancy has slumped at the 475,000-square-foot office building, to 67 percent at the end of last year compared to 87 percent at loan underwriting.

And although the special servicer is reviewing resolution alternatives, the vacancy rate may worsen at the Wedbush Center. The building’s largest tenant, that shares its name, plans to vacate the premises once its lease expires at the end of the year: Wedbush Securities is ditching its 100,000 square feet of space after two decades.

Eyes on the clock

Now to Santa Monica. The Santa Monica Clock Tower was recently appraised at $27.4 million compared to $49 million at loan issuance. That’s a 44 percent drop in around a decade and puts the office tower’s value under the $58 million Rockwood Capital paid for it six years ago.

The value drop comes after the $26.7 million CMBS loan connected to the offices went to special servicing after missing a May maturity date. But because the borrower is responsive and the value is still above the debt balance, there may be room for modification.

Once the city’s tallest skyscraper, the century-old, 12-story Art Deco office property, has seen its occupancy plummet to 43 percent in March this year versus 100 percent at loan underwriting ten years ago. The 53,500-square-foot office building at 225 Santa Monica Boulevard is not bringing in enough money to pay off debts.

On sale

And our last stop: Pasadena.

Swift Real Estate Partners sold a nine-story office tower to GD Realty at about an 47 percent loss, for $31.5 million.

The property at 790 East Colorado Boulevard was part of a three-building office complex in Pasadena that Swift Real Estate partners purchased for $193 million six years ago. The offices at 790 East Colorado Boulevard were purchased for $59 million, property records reveal. The 146,000-square-foot office building is 70 percent leased.

The three properties were collectively known as “The Pasadena Collection,” and span 517,000 square feet. The two other properties were a 212,000 square-foot building at 155 North Lake Avenue, and a 159,000 square-foot building at 35 North Lake Avenue.

Slam dunk

Basketball brothers-turned-developers scored $46.6 million in construction financing for an apartment development in Echo Park.

NBA star Tobais Harris, who plays for the Detroit Pistons, and Visionary Developments’ Terry Harris, who played in a developmental league, secured senior and mezzanine debt from JP Morgan and BlueHub Capital.

The development totals about 86,500 square feet. The 189 apartments at 1540 West Court Street are deed-restricted at 80 percent, meaning households can only earn up to 80 percent of the median income; in Los Angeles County that would be $84,500 for a single person, $96,950 for two and so on — and the project benefits from Mayor Karen Bass’ Executive Directive 1, which aims to streamline the approval process for affordable housing.

The Harris brothers have two other Echo Park apartment developments: one at 1230 West Sunset Boulevard that is under planning review and another at 333 Douglas Street that is under construction.

Stalled project finds suiters

The bankrupt, half-baked Oceanwide Plaza at the center of Downtown Los Angeles has two bidders, according to its broker, Colliers’ Mark Tarczynski. Both bidders are developers, one is from abroad.

After would-be buyers couldn’t come up with the cash, Tarczynski says they now have to show money to talk. That means $450 million to purchase the entitled site and $1 billion to complete it. That’s despite the $1.2 billion that was spent on construction.

“We get a lot of interest, and it’s just finding a billion and a half dollars to complete the project is proving difficult,” Tarczynski said.

Construction on the unfinished, mixed-use, 1.5-million-square-foot project covered in graffiti began a decade ago. It became two half-built towers before landing in bankruptcy due to financial issues. Everything has been on hold since January 2019; the project faced foreclosure in 2023 and filed for Chapter 11 bankruptcy the following year.

But Tarczynski anticipates the deal to close by the end of the year — although he had previously hoped it would happen before the second quarter.

Builder’s remedy win

A Los Angeles judge found in favor of developer Leo Pustilnikov after he sued Beverly Hills for attempting to block a 19-story mixed-use development on Linden Drive.

The proposed project, which includes apartments, hotel rooms and a restaurant, was one of the first in Beverly Hills to put builder’s remedy to use. The legal mechanism allows developers to bypass local planning boards and zoning when localities’ housing plans fail to comply with state-mandated goals.

The ruling could have an effect on other housing developments that have been proposed in recent years through builder’s remedy, but were still held up by the city.

“This puts the wind at our back and sends a message clear as day. The city cannot rely on specious legal arguments to delay and deny a developer’s vested rights.” Dave Rand, an attorney for Pustilnikov, said.