With vacancies up and demand down, investors are grappling with surplus space, mostly in older buildings.
In the heart of Santa Ana, a newly renovated office complex has a date with the wrecking ball.
Hence, building owners are searching for solutions to cascading cash flows and rising operating costs. As of June 28, just 49% of Los Angeles’ pre-pandemic workforce showed up at their offices, according to Kastle System’s “Back To Work Barometer,” which tracks app, keycard and fob usage to measure office occupancy rates.The owner of the Gas Company Tower in downtown Los Angeles has defaulted on a $465 million loan for the 52-story skyscraper at 555 W. 5th St. It is one of two Brookfield DTLA Fund high-rises in default, according to investment trust’s public filings.
At 52 stories, the 777 Tower, center, is one of downtown L.A.’s tallest high-rises. Subsidiaries of the owner Brookfield DTLA Fund have defaulted on the building’s $318.6 million loan, the fund announced in February. ““The very vertical office product is really getting hit particularly hard,” said Anthony DeLorenzo, a CBRE vice chair specializing in Southern California’s office market. As a result, office vacancy rates hit a 29-year high in L.A.
“A lot of negative demand is typically concentrated in older product that hasn’t been renovated,” said David Barnett, a CBRE thought leader for Southern California. Downtowns all over the country have yet to recover from pandemic lockdowns that turned central business districts into ghost towns, and LA’s city center is no exception.
Trepp, which maintains a mortgage database for commercial properties, reportedly put 81 Los Angeles office properties on a watch list for troubled debt, according to CBRE. Most office conversions occur in “Class B” or “Class C” buildings more than 30 years old, wrote the study’s author, Jacob Rowden, JLL office research manager.
Urban Stearns of Culver City purchased the Topaz Tower in downtown San Pedro in April and plans to convert the half-empty office building into an apartment complex. The building’s previous owner received city approval to convert the building into 228 apartments. However, a spokesman for the new owner said they still are evaluating whether to stick to that plan or add more apartments.
The top floor of the 12-story Topaz Tower, which offers views of the Port of Los Angeles, is currently vacant. However, the new owner, Urban Stearns of Culver City, is studying ways to convert the San Pedro office building into an apartment complex. CoStar reported that the sale price was $28.9 million. The office tower currently is 56% vacant, CoStar said.
City Centre I in Orange is 42% vacant, according to CoStar. Watermarke Properties of Corona paid $22.5 million for the four-story office building, which sits on just under 7 acres near the Outlets of Orange Mall. Newmark reported at least four sales recently to potential office-conversion developers.
An ideal floor size is less than 20,000 square feet and less than a fourth of the nation’s hardest-hit office buildings are that small, according to CBRE. The new conference room at the office buildings on the 3100-block of Harbor Boulevard in Santa Ana on Wednesday, June 28, 2023. Kearny Real Estate plans to tear down both buildings to make way for a new 163,000 square-foot Harbor Logistics Center.
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