High Office Price Tags Are Keeping Investors Out of DTLA

The high pricing on office product is keeping some investors out of the Downtown Los Angeles market, because the leasing activity and rental rate growth doesn’t justify the property values. Harbor Associates is among them. The firm recently partnered with Bascom Group to purchase $500 million worth of office product in Western US markets in the next two years, but says that Downtown Los Angeles is not among its target markets.

“It seems like Downtown Los Angeles is slow,” Paul Miszkowicz, a principal at Harbor Associates, tells GlobeSt.com. “There is a lot of momentum and a lot of hype in the market, especially in the Arts District, and it seems like people really want the office market to be better than it is. It hasn’t moved in the way that people have thought it would.”

While they are buyers in Downtown Los Angeles, Harbor is a big believer in the market, and they would be open to opportunities—for the right price. “That is a challenge,” admits Miszkowicz. “At the prices we are seeing today, we would not buy in Downtown Los Angeles. The amount of leasing activity and the economic patterns haven’t supported a lot of the values that are out there, at least not yet.”

However, Miszkowicz is keeping a close eye on activity and growth—especially leases like Warner Music and Spotify, which could change the market. “I really like the market, and I am a personal believer in the market,” he explains. “The amenity base is getting really interesting, and the retail is exploding. It is a really big place to go and visit. It is becoming a more exciting destination to go to. I think there have been a lot of good trades in the market that are setting pricing floors and plateaus for future sellers.”

Harbor is a player in the Los Angeles market, however, and in general the firm focuses on Southern California markets. Earlier this year the firm purchased assets in Los Angeles and Del Mar. “A lot of what we have been buying has been in quasi-suburban and urban markets,” says Miszkowicz. “There really hasn’t been a lot meaningful new construction developed in the markets that we are investing in. A lot of the markets that we focus on aren’t sexy and they don’t check the box for an institutional investor to office in, like Downtown L.A. or El Segundo. It is bread and butter.”