A high-profile office building in downtown Los Angeles has landed a new buyer as part of a redevelopment deal that came with a steep discount.
The Swig Co., a San Francisco-based real estate firm, sold the former Union Oil headquarters building at 617 W. 7th St. for $20.5 million to the Shomof Group, a local firm with a track record for historic conversions and extensive redevelopment projects. The deal, confirmed by local property records, works out to about $94 a square foot. That's about half the nearly $39 million — or $180 per square foot — Swig paid for the downtown building in 2011.
The roughly 215,000-square-foot property hit the market this year as a potential residential conversion opportunity while the amount of available office space in the city, like some other areas across the country, outpaces demand. Some landlords across the United States are testing whether the chance at a multifamily conversion, coupled with bargain pricing, will be enough to land buyers for office properties.
The deal with Shomof Group marks the lowest price on a per-square-foot basis for an office building since the pandemic's outbreak in early 2020, according to CoStar data.
Built in the early 1920s, the building at the corner of Seventh and Hope streets was developed to house the headquarters for Union Oil, one of the world's major petroleum exporters after its founding in the late 19th century. The Beaux Arts property established the company's corporate hub in Los Angeles and is now about 40% leased to a mix of professional, legal and financial services firms, according to CoStar data.
The building, marketed by JLL, has some of the important components to be successfully converted into multifamily use. Earlier marketing materials touted its access to natural light and ceilings that are tall enough for residential space. Even so, the cost and complications associated with overhauling older office properties is proving to be a major hurdle for some developers across the country attempting to repurpose otherwise obsolete office space.
Neither Swig nor Shomof immediately responded to CoStar News' requests for comment.
Reduced Office Values
Similar to some other markets in the United States, office valuations in Los Angeles have fallen under the effects of flexible work trends, depressed leasing volume, bleak refinancing conditions and high interest rates as companies seek to cut back on costs.
The fall in office values could match or surpass the depreciation reported throughout the Great Recession, credit rating agency Fitch Ratings wrote in a recent report, adding that prices have yet to bottom out.
Office values have fallen to a near four-year low, and any recovery effort from that level could stretch beyond the time it took for the market to bounce back from the 2008-era crash.
Average valuations are down by as much as 15% since the end of 2021, according to CoStar analysis, with larger, institutional-grade properties dropping by about twice that rate.
Average pricing in Los Angeles — where vacancy rates downtown have climbed past 20% — is expected to drop by at least 25% from its earlier peak, according to a CoStar analysis.
The last major office sale downtown occurred in December when private investors led by Los Angeles-based Carolwood acquired the 62-story Aon Center, built in 1974 at 707 Wilshire Blvd., for $153.5 million. Also last year, UCLA bought the Trust Building at 433 S. Spring St. for roughly $40 million.