While downtown L.A.’s leasing continued its sluggish ways during the quarter, sales of major commercial properties reached levels not seen since the onset of the recession.
The major givebacks from downsizing professional services firms added nearly 49,000 square feet of space to the office market, pushing the vacancy rate up two-tenths of a point to 17.4 percent, according to Jones Lang LaSalle Inc.
Those vacancies are likely to remain high for some time as firms continue to downsize, which has depressed prices for office buildings so much that investors are beginning to pounce. Four buildings were sold or in escrow during the quarter, including the Wedbush Center at 1000 Wilshire Blvd., which Lincoln Property Co. purchased for about $132 million, or $273 per square foot. By comparison, recent sales of similar San Francisco office buildings have topped $800 a square foot.
“Downtown buildings are now at a relatively low price point compared to other major metropolitan areas,” said Arty Maharajh, senior research analyst with Transwestern in Los Angeles. “This appeals to investors, especially institutional investors.”
The quarter’s biggest lease deal resulted in no net change in space, which these days counts as a victory of sorts. Law firm Lewis Brisbois Bisgaard & Smith LLP renewed 160,400 square feet at the North Tower of Figueroa Plaza, 221 N. Figueroa St.
But the next largest deal was typical, putting more than 80,000 square feet back on the market. San Francisco law firm Morrison Foerster LLP slashed its space by more than half after moving to Aon Center from another downtown high-rise.
Among the bright spots was a three-acre parking lot on Eighth Street sold by developer Sonny Astani to a group of investors seeking to capitalize on the growing popularity of downtown as a residential neighborhood. The investors plan to spend about $300 million to build an already approved 700-unit apartment building with a rooftop pool and ground-floor retail. Terms of the deal were not disclosed.
Some creative firms followed the footsteps of architectural firm Gensler, which moved downtown last year from the Westside. For example, architectural firm Shlemmer + Algaze + Associates opened an office at 515 S. Flower St.
“We’re seeing architectural firms and technology firms that want young employees to be able to take the Metro Rail,” said Tim Miller, senior vice president with Jones Lang LaSalle’s downtown office. “(But) every time we see a little momentum from firms like these coming into the market, then, wham, we have another one of these huge law firm or financial firm space givebacks that sends us back into negative territory.”
– Howard Fine
Lincoln Property Co. purchased the Wedbush Center at 1000 Wilshire Blvd. from a partnership of New York firms Lehman Bros. Holdings Inc. and Broadway Partners Fund Manager LLC. Terms of sale for the 476,000-square-foot building were not disclosed, but industry experts peg the value at $132 million, or $273 per square foot.
Law firm Lewis Brisbois Bisgaard & Smith LLP renewed 160,400 square feet at the North Tower of Figueroa Plaza, 221 N. Figueroa St. The 10-year deal with landlord the city of Los Angeles was valued at $45 million.
San Francisco law firm Morrison Foerster LLP signed a 15-year lease for 77,000 square feet with Beacon Capital Partners LLC, owner of the Aon Center at 707 Wilshire Blvd. That’s less than half the 160,000 square feet the firm had occupied at the Gas Co. Tower building owned by MPG Office Trust Inc. at 555 W. Fifth St. Terms of the new lease were not disclosed, but industry sources pegged it at roughly $21 million.
OneLegacy, a non-profit organ and tissue donation facilitator, signed a lease expansion worth $11 million at Figueroa Courtyard, 221 South Figueroa St. The deal with landlord U.S. Bank includes a six-year extension of its current 40,000-square-foot lease and a 10-year lease for an additional 10,000 square feet; both leases expire in 2022.
Federal officials have proposed swapping the historic North Spring Street Courthouse for vacant land at First Street and Broadway, where the General Services Administration would seek a private developer to build a 175,000-square-foot office tower next to a planned federal courthouse.
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