Featured image credit: Levi Clancy
If you believe that office space will someday return to its pre-pandemic glory, now might be a great time to invest. This week, appraisals revealed that two Downtown LA office tower investments linked to the Toronto-based Brookfield commercial real estate firm have dramatically sunk in value. Both EY Plaza at 725 South Figueroa Street and Bank of America Plaza at 333 South Hope Street have lost at least 66 percent of their value according to recent appraisals. It’s staggering news for those holding commercial office space investments in Downtown LA, but it could actually be good news for those wanting to add office tower space to their portfolios.
New Appraisal – EY Plaza
- 725 S Figueroa St
- Stories: 41
- Square Footage: 943,000
- Appraisal Value: $150 million
- Value Per Square Foot: $159
Appraisers valued Downtown LA’s 41-story EY Plaza at $150 million, a far cry from the $446 million value ($473 per square foot) appraisers measured in 2020. However, Brookfield is already in the process of letting go of the sinking office tower investment. Court approval of the sale is still pending, according to Morningstar, but a receiver has already been found.
New Appraisal – Bank of America Plaza
- 333 S Hope St
- Stories: 55
- Square Footage: 1.4 million
- Appraisal Value: $189 million
- Value Per Square Foot: $135
Appraisers valued the arguably more well-known 55-story Bank of America Plaza at $189 million ($135 per square foot) in yet another blow to the Downtown LA office tower investment market. That’s 69 percent less than its value when it was appraised a decade ago at $605 million ($432 per square foot). The 1974 office tower was renovated in 2009 and, as of July, stands at 79 percent of its lease capacity.
As it stands, Bank of America Plaza holds $400 million in security debt that has yet to be refinanced or paid. But unlike EY Plaza, Brookfield has no clear plans to let go of this investment, retaining it along with six other Downtown LA investment properties. Yet all but one of these investments is currently in default. Among these investments is the Gas Company Tower which also sunk deeply in value according to the county’s recent offer of purchase. Once valued in excess of $630 million, Los Angeles County has refused to pay more than $200 million in the acquisition.
The Trend of Lowering Office Tower Value
Downtown areas and metropolitan business centers across the country have been feeling a distinctive burn when it comes to office space demand. These areas suffered a nearly 53 percent decrease from March 2022 to September of this year according to data collected by MSCI Inc. And Downtown LA is struggling more than most markets. According to CBRE, the availability of office space in Downtown LA hovered around 38 percent in the third quarter of 2024.
And Brookfield’s recent appraisals are further signs of the times when it comes to office tower investments in downtown areas across the country. Recently, in a low water mark for Downtown LA office space investment, the Swig Company let go of 617 West 7th Street for $20.5 million… around 47 percent less than the purchase price less than 10 years ago. The sale was at a meager $94 per square foot.
Two Sides of Office Investment
Analysts frequently cite the wake of the global pandemic and a surge in borrowing costs as the catalyst for lowering value and rocketing vacancies of office space across the country. But when appraisers reduce the estimated value of an office tower, they’re actually forcing a hard reassessment of the downtown marketplace. It can be an exhausting storm for long-term investors but a perfect gateway for prospective investors with an optimistic outlook on the long-term future of office investment.
