Los Angeles Offices Are Trading for Bargain Basement Prices

We’re not going to call it a fire sale, because there haven’t been too many large office trades in Los Angeles this year, but the year is closing with some bargain benchmarks.

Last week, Carolwood closed on a deal to buy the Aon center in Downtown Los Angeles for $147.8M. The deal, which translates to $134 per SF, one of the lowest per SF prices in DTLA in the past 10 years.

The 1.1M SF tower at 707 Wilshire Boulevard sold for a 45% discount compared to the $268.5M the seller, Shorenstein Partners, paid for it in 2014. Shorenstein had put the Aon Center on the market in January with an asking price of $220M, or about $200 per SF.

The sale of the Aon Center, the third-tallest tower in Los Angeles, is the largest office tower deal this year in the city’s downtown, which is struggling with nearly a third of the office space available for lease or sublease.

“With a new low basis and a well-capitalized owner, Aon Center will be competitively positioned to attract and retain tenants who desire a well-amenitized skyline tower in the heart of downtown Los Angeles,” Sean Fulp, a Colliers broker representing the buyers, said in a statement.

The deal for the Aon Center, which according to the report Carolwood bought in a joint venture with real estate investors Daniel Abrams and Adam Tischler, is the first major DTLA tower to trade after the Measure ULA property transfer tax went into effect in April.

The sale of the Aon Center is subject to a tax of about $8M under Measure ULA. Measure ULA, nicknamed the “mansion tax,” imposes a 4% tax on all residential and commercial sales over $5M and a 5.5% tax on sales over $10M. The new taxes were added to an existing transfer tax of 0.45% in Los Angeles.

Los Angeles voters approved the new tax by a lopsided 58% to 42% in a statewide referendum in November after proponents of the transfer tax projected that it would generate up to $900M for a new housing fund. In March, the Los Angeles City Administrative Officer projected that Measure ULA would generate $672M in its first fiscal year.

However, since the law went into effect in April, Measure ULA, has had a significant dampening effect on real estate transactions. In April, Los Angeles collected a paltry $3.6M from only five transactions that were subject to the new tax. As of July 1, that total only crept up to $38M.

This week, Harbor Associates and F&F Capital Group acquired a five-story office campus at 1640 Sepulveda Boulevard, in the vicinity of Century City and Beverly Hills, for about $45M, less than half of what the property fetched when it was traded in 2018 for nearly $93M.

The building at 1640 Sepulveda, which dates to 1987, was 80% occupied when the deal closed, according to a statement issued on Tuesday.