One of the largest office buildings in downtown Los Angeles is close to trading hands for a price that echoes the weakening demand for offices nationwide. It would also bring new ownership to a property whose financial fortunes have waned since the pandemic.
The roughly 1 million-square-foot tower at 777 S. Figueroa St. is expected to sell in a lender note deal valued at roughly $145 million, or about $145 per square foot, according to someone familiar with the deal and Bloomberg, which reported earlier on the possible sale.
South Korea-based investment firm Consus Asset Management is said to be the buyer of the property currently owned by Brookfield DTLA.
Brokerage Eastdil has been marketing the property since late last year as a "lender facilitated acquisition opportunity," according to marketing materials. The 52-story property, built more than three decades ago, has been hovering at an occupancy rate of about 55.5%.
Brookfield DTLA warned in February 2023 that it defaulted on roughly $289 million in loans related to the property with lender Wells Fargo Bank. Similar to other landlords across the country facing mounting financial distress, Brookfield DTLA has struggled in the face of depressed leasing demand and rising interest rates, pushing two other buildings it owns in the downtown Los Angeles area — the 52-story Gas Company Tower as well as the 41-story EY Plaza — into receivership.
"This is one of many distressed sales likely to hit Los Angeles' office market in the coming years," said Ryan Patap, senior director of market analytics for CoStar Group in the Los Angeles office.
Brookfield DTLA, an affiliate of Canadian real estate giant Brookfield, declined to comment to CoStar News, and representatives for Consus Asset Management did not respond to a request to comment.
The pending deal for the 777 Tower is slated to sell for less than the $324 per-square-foot average reported across the market, according to CoStar data.
Brookfield DTLA took ownership of the tower in 2013 as part of its acquisition of Southern California landlord MPG Office Trust.
Yet To Hit Bottom
Office landlords across the country have at times struggled to land buyers as they look to offload distressed properties. Large institutional owners such as Credit Suisse, Blackstone, Columbia Property Trust and Brookfield Properties have recently closed deals at prices far less than their initial investments, signaling that pricing challenges across the national office market could continue.
Similar to other markets in the United States, office valuations in Los Angeles have collapsed under the impact of flexible work trends, depressed leasing volume, bleak refinancing conditions and high interest rates. 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 is likely to 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 LP 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.
The building opened in 1991 and is located in downtown Los Angeles' financial district. The tower's biggest tenants include insurance company Lockton, law firm Arnold & Porter and law firm Nossaman. CoStar Group also leases space there.
The skyscraper is the seventh-tallest building in Los Angeles. Architect César Pelli designed the building, which features a rose marble lobby and is located adjacent to the retail center FIGat7th.