“It’s definitely picking up. People are more optimistic with the vaccine rollout ... and there’s a lot of operators that didn’t do any deals during the pandemic, and they make money by buying deals,” Newmark Group Inc. Co-Head of Capital Markets Kevin Shannon said.
He added that a lot of companies raised money for distressed sales “which never really happened.” As a result, those companies have money to spend now on real estate.
Eli Randel, chief strategy officer for Commercial Real Estate Exchange Inc., agreed that the market was gaining momentum, but added that most sales involve “$5 (million) to $10 million buildings, which can be smaller, suburban-style office buildings.”
Todd Tydlaska, an executive vice president at CBRE Group Inc., said the multifamily and industrial real estate categories are faring the best at the moment while asset types like retail are still struggling. He added that “office is this great unknown somewhere in between.”
At the peak of the pandemic, value-add properties were off 15%-25% from pre-pandemic prices while core-plus was down 8%-15% and core had slipped 0%-5%.
Tydlaska said he has seen some properties fetch record-setting, per-square-foot sale prices. These sites usually have tenants with good credit and long-term leases, and the buildings are relatively new.
Some sales from last year were pushed into this year, Tydlaska said, adding that he expects to see more sales as 2021 continues.
“L.A. continues to be a target market for capital. Sellers have been resistant to unload projects because they didn’t want to acknowledge a reduction in value and they didn’t have to. Most people took a wait-and-see approach,” Tydlaska said. “You have a lot of folks who are waiting to sell product, and it feels like that dam is going to break this year.”
“The office market in L.A. has really been dominated by media and entertainment markets,” Tydlaska said. “Burbank could not be hotter. ... There’s no shortage of capital for Burbank.”
Shannon added that Burbank, Culver City and El Segundo were all doing well and that content creators were a “big driver” of office space in L.A.
“A lot of those firms aren’t back in the office yet, but there’s a lot of pent-up demand and that industry is going to lead us out of this downturn,” Shannon said.
The largest office sale so far this year was actually a historic entertainment office space — the Sony Pictures Animation Campus.
Culver City-based Hackman Capital Partners and Square Mile Capital purchased the property for $165 million earlier this year.
In the Tri-Cities area, The Link, a nearly 125,000-square-foot office building with creative office space, post-production, broadcasting, screening and editing facilities, sold for $61.5 million.
Pendulum Property Partners purchased the property at 2901 W. Alameda Ave. Shannon was part of the team representing the seller.
Also in Burbank, Wonderful Co. purchased the 94,000-square-foot Media Center North at 2835 N. Naom
Nearby in Glendale, Nuveen Real Estate purchased the Victory Media Campus for $45 million from LLJ Ventures.
Lack of data
Lack of data
“The biggest issue in sales right now is data points for leasing. For most investors, they know where the debt markets are today, they know where their cost of capital is but are having a hard time coming up with the value of the market because they don’t know where rents are,” Tydlaska said. “It’s hard for investors to have conviction of where rents are today.”
The amount of sublease space can also make it difficult to price rents.
More sublease activity is happening in markets like Santa Monica than before the pandemic, but Tydlaska said many subleases are for smaller spaces.
Looking forward, Shannon expects office sales to gain steam this year and especially next year.
“It’s steady as it goes but it’s not overwhelming.” he said.
Top 10 L.A. County Office Sales to Date in 2021
Buyers: Hackman Capital Partners and Square Mile Capital
Seller: H&R Real Estate Investment Trust
Address: 9094 and 9050 Washington Blvd., Culver City
Price: $165 million
Seller: CEG Construction
Address: 500 and 540 S. Santa Fe Ave., Arts District
Price: $80 million
Buyer: Gemdale USA Corp.
Sellers: Rising Realty Partners and Mount Kellett Capital Management
Address: 4500 Park Granada, Calabasas
Price: $79 million
4. Archway Medical Plaza
Buyer: LaSalle Investment Management
Seller: UBS Realty Investors
Address: 9033 Wilshire Blvd., Beverly Hills
Price: $74.4 million
Buyer: Pendulum Property Partners
Seller: Fortress Investment Group and Ocean West Capital Partners
Address: 2901 W. Alameda Ave., Burbank
Price: $61.5 million
Buyer: Nuveen Real Estate
Seller: LLJ Ventures
Address: 1840 Victory Blvd., Glendale
Price: $45.1 million
Buyer: Wonderful Co.
Seller: GPI Cos.
Address: 2835 N. Naomi St., Burbank
Price: $42.2 million
8. Cygnus Wilshire Center
Buyer: Urban Realty & Management
Seller: JWL Development Co. Inc.
Address: 2975 Wilshire Blvd., Koreatown
Price: $31 million
Buyer: SAR Enterprises
Seller: Menlo Equities
Address: 924 Overland Court, San Dimas
Price: $28.9 million
Seller: Barry Katz
Address: 10150-10200 Jefferson Blvd., Culver City
Price: $26 million
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