Featured image credit: Serouj
Further setting the temperature for real estate investments in Downtown Los Angeles, a 25-story commercial office tower at 801 S. Figueroa St. has been sold to an undisclosed investor. The sale was confirmed in an announcement this week from the real estate firm Asia Pacific Capital Co. However, an anonymous source claims that the building, originally built in 1991, sold for far below its asking price. What does this mean for those seeking real estate investments?
A Sale Far Below Asking Price
Asia Pacific Capital Co.’s statement sidestepped any mention of the buyer’s identity or the building’s purchase price. However, an allegedly reliable source familiar with the sale has indicated that 801 S. Figueroa sold for far below its last sale price. In September 2014, real estate investments firm Barings, based in Charlotte, North Carolina, purchased the building for $197 million. This translates to roughly $423 per square foot.
But speaking to the Commercial Observer, the anonymous source claims that an undisclosed Chinese investor purchased 801 S. Figueroa St. for $60 million ($129 per square foot)… $118 million less than its sale price in 2014. The exchange also accounts for the transfer of the building’s remaining debt. While the anonymous source was reticent in revealing the identity of the investor behind the building’s purchase, public records indicate the property deed was transferred to an Arcadia-based LLC.
Troubling Vacancy Rates for Property Owners
The sale of 801 S. Figueroa St. gives us detail into a larger portrait of the current situation in Downtown LA. According to data collected by real estate investments news source CoStar, LA’s downtown area holds a 21.8% office vacancy at present. Though several businesses have returned to the office as the world rebounds from the COVID-19 pandemic, the vacancies are still being filled at a slower rate than investors had hoped. Meanwhile, in light of the creeping demand for office space for rent, investors in several prominent buildings in Downtown LA have failed to keep up with their loan payments.
Similar stories have been plastered across the real estate investments news sites for months. Most recently, LA County’s purchase of the 52-story Gas Company Tower made headlines. On the brink of a foreclosure auction, the building’s sale would have made news on its own. But its sale price of $215 million ($154 per square foot) was staggering. Especially considering pre-pandemic assessors estimated the building’s value at $630 million.
What This Means for Those Seeking Commercial Real Estate Investments
The situation isn’t unique to Downtown LA. And while it may not be the news that the owners of current investment properties want to hear, it has a distinct silver lining for those seeking to bolster their portfolios of real estate investments. These low sale prices are opening the door for wealthy individual investors to throw their hat in the ring and compete against established investment groups.
Investors may question the security of purchasing real estate investments in the weakened office space niche, but it’s important to remember that property investment is cyclical. We’re firmly in the “buy low” phase that will, sooner or later, be followed by the “sell high” phase. So, the real question for investors of commercial real estate listings becomes “How long can you hold on?”
