LA’s Union Bank Plaza Sold at Loss for $155M

KBS Realty Advisors, through its KBS REIT II subsidiary, has an agreement to sell the 40-story Union Bank Plaza in downtown Los Angeles to Waterbridge Capital for $155M.

The sale price is nearly $50M less than the $208M KBS paid to acquire the landmark tower from Hines in 2020.

In announcing the sales agreement with Waterbridge Capital, KBS REIT took the unusual step of stating “there can be no assurance that the Company will complete the sale,” a reference to a May announcement by KBS that it had an agreement to sell the property to Harbor Associates for $165M, a deal that Harbor withdrew from in June.

Built in 1967, the 701K SF tower became the first skyscraper in Los Angeles to be designated as a city historical-cultural monument in 2020. The property, located on 445 South Figueroa Street next to the 110 Freeway, includes 25K SF of retail space on two ground floors and 914-space parking garage.

The deal for the 701K SF office building, expected to close in October, is nearly $100M less than the original asking price when KBS put Union Bank Plaza on the market last summer.

When KBS put the building on the market in August 2021—when it was 62% leased with a weighted average lease term of 7.7 years—Union Bank Plaza was expected to garner up to $260M from a prospective buyer, according to a report last year from Green Street.

According to reports, Union Bank, the tower’s anchor tenant, amended its lease agreements in 2109 to allow it to give up more than 131K SF of its office space between May 31, 2020 and May 31, 2022. The bank still holds a long-term lease for an additional 165K SF that runs through May 2035.

SEC filings indicate that Union Bank Plaza was 64% occupied at the end of March. KBS REIT II voted in 2020 to liquid its assets, but it has had trouble unloading Union Bank Plaza, which is its last remaining property.

“Demand for office space in downtown Los Angeles significantly declined as a result of the pandemic, with employees continuing to work from home,” KBS said in an SEC filing.

The REIT also said that rising interest rates are making it difficult for prospective buyers to obtain favorable financing, which along with lower demand for office space is impacting projected cash flows for the Union Bank tower.

In a presentation to shareholders at the end of May, the REIT said the uncertainty over the sale of Union Bank Plaza had forced it to lower its estimate of the net realizable value of liquidating the property by about $25M.