Arco Plaza, a downtown office colossus in serious decline for years, soon may re-emerge as one of the West’s premier projects.
Its owner, Shuwa Investments Corp., has decided to market the massive 2.2 million-square-foot twin towers as a standalone asset, uncoupling it from Shuwa’s four other, less-attractive downtown L.A. office buildings.
And with CB Richard Ellis Inc. working to find a buyer, Arco Plaza may finally find an owner with enough available resources to restore it to its original grandeur.
It’s the kind of distressed asset that today’s vulture investors are craving. The project’s condition is deteriorating, tenants are pulling out in droves and its owner doesn’t have enough available cash to fix it.
Even better, Arco Plaza is in a prime location in the heart of downtown’s business district one of the few areas of L.A. where commercial real estate conditions are still improving.
“Given the right new owner with the resources to renovate that project, it could greatly contribute to downtown turning the corner in terms of perception as an office marketplace,” said Todd Anderson, a senior director at Cushman & Wakefield Inc.
Shuwa and CB officials declined to discuss the situation.
One thing is certain: Arco Plaza won’t fetch anywhere near the $650 million ($289 a square foot) that Shuwa reportedly paid in 1986.
Industry sources said Shuwa is hoping to get about $150 a square foot for Arco Plaza, which would put the price at about $330 million. Just last month, Robert F. Maguire of Maguire Partners proposed buying the project for that amount, in a failed bid to put the Los Angeles Unified School District into one of the towers.
Several industry sources said the project’s true value is significantly less than that. Industry estimates range from $75 to $120 a foot.
One local real estate source said the Japanese landlord could be stuck for years with its downtown L.A. albatross if it insists on the $150 price tag. By comparison, Sanwa Bank Plaza considered the choicest of downtown office projects was sold in 1999 for $226 per foot to Hines Interests LP. “I think it’s going to be a fairly skeptical investor community, but they might smell blood,” the source said.
Brokers’ challenge
When Arco Plaza opened in 1971 it was considered by many to be the premier office location West of the Mississippi, if not in the country. Its 2.5 million square feet was the most commercial space to come on line at once anywhere in the world, according to John Cushman, who moved to Los Angeles to market and lease the building for Cushman & Wakefield Inc.
“The whole project was beyond anyone’s comprehension,” said Cushman, who now is retired but remains chairman of Cushman & Wakefield.
Today, Cushman said, CB brokers have an important role in how the situation plays out.
“If CB gives Shuwa a reality check on what the value is in the marketplace, it will sell. If there’s a difference between the bid and the ask price, you’ll have heartache,” said Cushman.
Whatever the selling price turns out to be, the buyer will need to spend $50 million to rehabilitate the long-neglected project, according to Anderson of Cushman & Wakefield. Maguire’s proposal called for $130 million to be spent on deferred maintenance and tenant improvements.
Another factor detracting from Arco Plaza’s value is its deteriorating tenant roster.
Atlantic Richfield Co., which once occupied 900,000 square feet in the north tower, abandoned its final 200,000 square feet in 1999. Ernst & Young left 200,000 square feet and Deloitte & Touche left another 100,000. Bank of America Corp., an original tenant, is considering taking its 380,000 square feet out of the project, according to a source familiar with the situation.
With the recent exception of landing L.A.’s biggest architectural firm, Daniel, Mann, Johnson and Mendenhall, this year, Shuwa has been unable to draw tenants.
The subterranean retail component, which has proven nearly everywhere to be a flawed concept, never has been successful and merely worsened as tenants bailed.
Lauren Rottet, a principal at DMJM Rottet, a design arm of the firm, said DMJM moved into the building partly because of the favorable rent. Terms of the company’s 15-year lease weren’t disclosed, but total consideration has been reported to be between $45 million and $50 million, which translates to $2 and $2.22 per foot, monthly.
That rent could prove to be a bargain should Arco Plaza become a premier project again.
“You’ve got a project here in the middle of downtown that has become, in effect, a black hole,” Anderson said. “If someone repositioned this building, it would demand the highest rents downtown.”
