A $148 million deal for one of the tallest towers in Los Angeles may be the priciest in the city's downtown this year at a time of major financial challenges for urban office properties.
Private investors led by Los Angeles-based Carolwood LP acquired the 62-story Aon Center, built in 1974 at 707 Wilshire Blvd., for about $147.8 million or $133 per square foot, according to brokers at Colliers who represented the buyer.
The sale price is still well below the $268.5 million or $242 per square foot that the seller, San Francisco-based Shorenstein, paid for the tower in October 2014, according to CoStar and public records. Shorenstein representatives did not immediately respond to an emailed request to comment from CoStar News.
Aon Center, last renovated in 2009, contains more than 1.1 million feet of space and is downtown Los Angeles’ third-tallest tower. Colliers said in a statement that the transaction is the only sale in the region since 2020 for tower properties spanning more than 1 million square feet.
“The ownership group’s acquisition of the iconic Aon Center exemplifies the flow of private capital into Los Angeles, seizing the opportunity created by market dislocation,” Sean Fulp, Colliers’ vice chair of West Region capital markets, said in a statement.
The deal for Aon Center comes after other potential buyers were reported to have explored buying the property this year, including the parent firm of nationwide parking lot owner WallyPark. Aon Center is among several high-rise office properties that have gone up for sale, faced foreclosure or have fallen into receivership in downtown L.A. over the past three years.
Fulp said in an email to CoStar News that the Aon Center deal could signal a budding recovery for downtown L.A. office investment demand, as some potential buyers find opportunities to invest at relative bargain prices compared with pre-pandemic levels.
“The discerning investors who are seizing generational opportunities are the key to the recovery of areas like downtown,” Fulp said.
The Aon Center deal is the second-largest office sale of 2023 for the L.A. region by total price and the largest in downtown Los Angeles, according to CoStar and public data. Aon Center is currently about 67% leased. J.P. Morgan Wealth Management's $178 million acquisition of the Pen Factory office building in Santa Monica, California, ranks as the region's largest office sale of 2023 so far, according to CoStar.
Urban Office Distress
Like many urban centers of major U.S. cities, downtown Los Angeles faced office vacancy struggles for the past five years that were exacerbated by the pandemic. The downtown L.A. office vacancy as of Dec. 26 was 19.2% and the availability rate, with sublease space factored in, was 20.9%, both above Los Angeles regional averages, CoStar data showed.
Downtown L.A. office landlords face a climate in which rents have declined 2.1% in the past year. Still, the downtown area posted $448 million in office property sales during the past 12 months, more than doubling the year-earlier figure.
“The sale of Aon Center provides the buyer with a significant basis advantage which will allow the new ownership to capture leasing market share within the Downtown Los Angeles market,” Kevin Shannon, co-head of U.S. capital markets for Newmark, said in an email to CoStar News. Newmark represented Shorenstein in the sale. “It is likely that those assets with a reset basis will be able to compete more effectively for tenants in the market.”
Ryan Patap, senior director of CoStar Market Analytics in Los Angeles, said the Aon Center deal does not yet speak to any sort of office recovery for downtown L.A. but shows what opportunistic investors are willing to pay amid today’s challenging market conditions.
“Given the issues the local office market has faced in recent years and longer-term questions on how tenants will utilize space, only those buyers willing to stomach considerable risk were likely to consider purchasing the asset,” Patap said.
For the Record
The buyers of Aon Center were represented by Sean Fulp and Adam Tischer of Colliers. The seller was represented by Kevin Shannon, Ken White, Rob Hannan, Laura Stumm, Michael Moll, Chris Benton and Anthony Muhlstein of Newmark. Dave Milestone of Newmark arranged debt financing for the transaction.