The year’s priciest office sale in all of Los Angeles happened downtown, and still, it only came out to about $150 per square foot. Considering the pre-pandemic normal was about $450, there’s little room to doubt the market is suffering. But there is still a pulse.
The deal was for Bank of America Plaza, an iconic office tower on Bunker Hill in downtown Los Angeles’ Financial District. Capital Group, a tenant, purchased the skyscraper for $210 million. The previous owner, Brookfield — a commercial real estate giant now synonymous with downtown distress — defaulted on a loan of around $400 million and ceded the tower to a receiver in 2024.
Yet before that, around a decade earlier, the real estate was worth $605 million or about $430 per square foot. That’s a long way away from the price now trumpeted in press releases.
Downtown Los Angeles is one of the worst office markets in the country, marked by unrelenting vacancies and unthinkably low trades. Landlords have either defaulted on their debt, lost control to receivers or handed back the keys to their lenders. Overall vacancy has reached almost 35 percent. Values are nowhere near what they used to be as real estate and its loans are trading at massive discounts. Institutional investors are making their exits, if they haven’t already.
Not to mention, it also happens to be one of the most derided downtowns in the country, and a graffiti-covered eyesore that towers over the troubled area hasn’t helped its image.
“Downtown L.A. is a victim of headlines, not reality. The grit is nothing new, and the buildings themselves are excellent,” Adam Rubin, whose private equity outfit Carolwood owns a downtown skyscraper, said.
While perception may not be reality, it does matter.
It’s a different story than the Manhattan office market, which is red-hot, or San Francisco making the comeback of the century. And likewise, closer to home, Century City is booming. But downtown just isn’t. A homelessness crisis, a post-pandemic new normal, a bad reputation, a so-called mansion tax and more could be to blame.
“Downtown doesn’t have a demand problem it can’t solve,” Chris Rising, a landlord who’s been bit by distress, posted on LinkedIn recently. “It has a city that taxes and neglects the very tenants its neighbors are glad to take in — then waits for a recovery that keeps moving a few miles up the freeway.”
It’s home to the notorious Skid Row, which appears to be metastasizing. This means more not-so-clean and not-so-safe streets, which isn’t appealing to companies who want their workers back at their desks, so they’re opting to move about 10 miles west to Century City instead.
Then, there’s Measure ULA — a 4 percent tax on all real estate deals above $5 million and 5.5 percent on those above $10.5 million — which reaches beyond offices and downtown, but has only worsened investors’ view of L.A. Rising, whose firm is Rising Realty Partners, once blamed the mansion tax for Wall Street losing trust in the city. He contends L.A.’s unfriendly policies (including a gross receipts tax) and downtown’s unsafe streets have made it almost impossible for bosses to keep their people there.
“Downtown should be the easy answer,” he said. “The rents make sense, the space is there, and the empty towers need exactly these tenants. Then the city makes the trade impossible — top tax rate, no incentive, and streets and transit it hasn’t made safe enough for a managing partner to put eight people there.”
That’s not to say downtown offices are dead, though neither the mayor, nor the council member who could be the city’s future mayor deny downtown’s demise.
There are companies choosing to be there. Rubin and partner Andrew Shanfeld’s Carolwood recently inked a 15-year, 50,000-square-foot lease with a bank at its Aon Center. Rising’s One California Plaza, in the hands of a receiver, attracted a law firm, which signed a 26,000-square-foot lease.
Still, in the post-pandemic world, tenants are shrinking their space. There aren’t many companies back in the office five days a week. That’s part of the new normal, which isn’t rosy; it’s actually a bit of a bloodbath. But there are still deals happening, which is better than nothing, and the pace has picked up.
“Things are starting to move,” said an industry insider who believes pricing has bottomed out.
In late 2023, when Carolwood purchased the Aon Center, the $148 million deal came out to around $130 per square foot. It was one of the cheapest deals on a price-per-square-foot basis for a DTLA office tower in years. Plus, it was a 45 percent discount from what its seller paid in 2014. (The mansion tax didn’t deter the trade, but it totaled $8 million).
“Today’s reset basis has private capital flowing back in,” Rubin said. “The value is impossible to beat — and the market is starting to get exciting.”
More recently, Carolwood almost purchased EY Plaza, another distressed, Brookfield-related offering downtown. But that deal fell apart last summer, and yet another deal for the tower just collapsed.
Carolwood’s $130 million EY Plaza pact was much less than the $275 million loan note on the real estate — and the latest would-be buyer was selected out of a pool offering around $100 million, meaning it would have been an even heftier discount. But it appears the sellers (which are a consortium of the receiver, special servicer and lender) can’t get on the same page as potential buyers when it comes to a price tag, so there is still a disconnect between what the offices were worth then versus now.
In any case, the Carolwood deal would have been around the $130 per square foot mark that’s popped up since — whether it be 601W’s $180 million buy for the Wells Fargo Center North Tower, after Brookfield’s $500 million default, or the Los Angeles Department of Water and Power’s TCW Tower purchase from Manulife, which the seller said would result in millions lost.
With a $100 million price tag, EY Plaza would trade closer to the $100 per square foot mark, which is around what Leo Pustilinkov’s PacMutual purchase cost (he and his jeweler partners paid less than $50 million, or a quarter of that property’s prior price). Oscar De La Hoya’s much smaller downtown office, on the other hand, appears to have gone for less than $100 per square foot.
But the movement comes after Brookfield and other institutions gave up on downtown. Brookfield took on a lot of debt and put its real estate holdings on the market or dropped them, as opposed to landlords who are still mostly holding on. Rising Realty and its partner lost control of One California Plaza to a receiver after a $300 million default — but the company is still there managing it. The Bunker Hill tower once had a $465 million price tag, or $465 per square foot, but now it’s valued around $120 million, or around $120 per square foot. Rising defaulted on a $200 million loan on offices on the outskirts of downtown, too, but he is working with lenders to resolve the matter and keep control of the property, which some suspect is worth about half the debt.
With Brookfield’s exit, there was so much being shopped at once. Late last year, the firm’s office offerings totaling millions of square feet amounted to 18 percent of the Financial District, Bunker Hill included. That may have pushed prices even lower. Downtown is now bumping along the bottom, but once all the Brookfield-tied properties sell, it could set a firm floor, outliers aside. Even so, it’s unclear if or when prices will rise again.
Of course, it isn’t only office in distress. Apartment and retail owners have defaulted on debt and could lose their properties, too. Then there’s Oceanwide Plaza, which has been stuck in bankruptcy court for years. Its owner, after spending a billion dollars on the incomplete three-tower complex, ran out of money and the development was abandoned — all before the pandemic. Today, it’s become an emblem of all downtown’s problems and fueled its bad reputation.
The question is: will downtown Los Angeles roar back or remain in a state purgatory? According to the insider we spoke with, it’s still “too early to say.”
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