LA’s third-tallest tower sells for 45% below 2014 price

AON Center, the third-tallest tower in Los Angeles, has sold for US$147.8 million – about 45 per cent less than its last purchase price in 2014 – as office values continue to suffer from high vacancies and financing costs.

The sale is the largest office deal this year in downtown Los Angeles, which has been among the hardest-hit US office markets since the pandemic as remote work becomes more popular and escalating interest rates drive down values, wiping out owners’ equity. 

“With a new low basis and a well-capitalised owner, Aon Center will be competitively positioned to attract and retain tenants who desire a well-amenitised skyline tower in the heart of downtown Los Angeles,” Sean Fulp, a Colliers broker representing the buyers, said in a statement.

The buyers are a group comprising Carolwood, a Los Angeles-based investment firm, Daniel Abrams and Adam Tischer, who was also a broker with Fulp in the sale. The seller, San Francisco-based Shorenstein, was represented by Kevin Shannon of Newmark Group.  

Almost 30 per cent of downtown LA office space was available for lease or sublease in the third quarter, brokerage Savills reported. Many tenants and investors are turned off by the neighborhood’s tough commutes and high homeless population. Rents downtown were 40 per cent lower than in more-desirable areas, such as Century City, where the availability rate was 16 per cent, according to Savills.

An affiliate of Brookfield, downtown’s one-time largest landlord, defaulted on three office towers in the area this year. An added blow for sellers was a voter-approved 5.5 per cent transfer tax on real estate transactions greater than US$10 million that took effect Apr 1. 

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Office prices nationwide have fallen 35 per cent from a peak in the first quarter of 2022, when the Federal Reserve began raising interest rates to combat inflation, according to real estate analytics firm Green Street. 

The 62-storey Aon Center, at 707 Wilshire Blvd, was built in 1973 and purchased in 2014 by Shorenstein for about US$268.5 million, according to property records. 

The sale price works out to about US$134 per square foot (psf). The most recent large downtown LA office property to sell was the Union Bank building. That deal closed in March for US$104 million, or about US$150 psf. BLOOMBERG