Design Firm’s Relocation Highlights Creative Draw of Submarket

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-WeWork closed a deal for about 90,000 square feet at Brookfield Office Properties Inc.’s Gas Co. Tower, 555 W. Fifth St. The New York-based provider of co-working office space is believed to plan to rent the space to small companies and entrepreneurs.

-Cal State Los Angeles announced a deal with landlord CIM Group to open a downtown campus at 801 S. Grand Ave. When it opens next year, the campus will be located in a 207,000-square-foot Class A office building in the Financial District. Terms were not disclosed but the deal is estimated at around $6.7 million.

-Ratkovich Co.’s the Bloc landed DLR Group with a deal for 35,000 square feet at the mixed-use property. The design firm will consolidate its employees from Santa Monica and Pasadena to the mixed-use development at 700 S. Flower St. The firm signed an 11-year lease for 35,400 square feet, valued at $18 million.

-Rising Realty Partners sold the 460,000-square-foot PacMutual Building for a record square-foot price. The $200 million was the highest per-foot transaction for a downtown office building. Ivanhoe Cambridge and Callahan Capital Properties were the buyers.

-Lincoln Property Co. and Angelo Gordon & Co. entered a contract to sell a 220,770-square-foot Class A office building at 800 Wilshire Blvd. to the Onni Group for nearly $80 million, or about $360 a square foot.

Downtown L.A.’s office market saw continued growth in the third quarter as the vacancy rate declined slightly and investment sales remained hot.

Vacancies in the submarket fell one-tenth of a point to 18.2 percent as tenants picked up 28,459 square feet in the third quarter, according to Jones Lang LaSalle Inc.

Average asking rates for Class A office space remained nearly unmoved, dropping a cent from the previous quarter to $3.44 a square foot. The rate had, however, jumped a whopping 13 cents in the second quarter from the first.

George Crawford, a downtown broker at Charles Dunn Co. Inc., said the leasing market was incredibly strong in the third quarter.

“There were probably close to or more than 80 leases done in the third quarter and probably 20 percent were done above 10,000 square feet,” he said.

Among those tenants, New York co-working facilities provider WeWork closed a deal for about 90,000 square feet at Brookfield Office Properties Inc.’s Gas Co. Tower, 555 W. Fifth St.

Meanwhile, design firm DLR Group agreed to relocate its employees from Santa Monica and Pasadena to a mixed-use project known as the Bloc at 700 S. Flower St. The firm signed an 11-year lease for 35,400 square feet at the building, owned by Ratkovich Co. The deal is valued at $18 million.

The relocation is a welcome signal of downtown’s ability to attract out-of-market creative tenants after a long-anticipated deal for BuzzFeed to move into the former Ford Factory in downtown’s Arts District fell through in the quarter.

Still, some say that wasn’t all bad news.

“BuzzFeed, a substantial media firm, considering downtown gives more credence to downtown,” said Maureen Hawley, a vice president at JLL’s downtown office. “Other large users now have an opportunity back on the market.”

Perhaps the biggest news out of downtown in the third quarter though was sales.

Rising Realty Partners sold its PacMutual Building, 523 W. Sixth St., in a record price-per-square-foot deal to Canadian real estate investment firm Ivanhoe Cambridge and Chicago private equity firm Callahan Capital Properties. The $200 million deal works out to about $430 a square foot, the highest ever paid for an office building downtown. Rising, which spent about $18 million converting the beaux arts-style building into creative office space, paid $60 million for the property in 2012.

The Onni Group is under contract to purchase a 220,770-square-foot office building at 800 Wilshire Blvd. for nearly $80 million, or about $360 a square foot, from Lincoln Property Co. and Angelo Gordon & Co. The deal is a significant premium over downtown’s average $285-square-foot sale price.

Brokers anticipate the momentum to continue through 2016 even if some elevated vacancy might be anticipated as companies such as law firm Milbank Tweed Hadley & McCloy, which occupies about 90,000 square feet, might move out. Still, with Brookfield continuing to corner nearly half of downtown’s trophy Class A space, it’s unlikely the vacancy rate will turn the submarket into a tenant’s market.

“Rates will continue to creep up despite what the vacancy does,” JLL’s Hawley said.

– Jacquelyn Ryan

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