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Tag: Office Market

  • Banks buck downsizing trend, re-up for 300K sf in Irvine

    Banks buck downsizing trend, re-up for 300K sf in Irvine

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    Three banks have re-upped their office leases for a combined 300,000 square feet in Irvine, marking some of the larger new leases in Orange County.

    Pacific Premier Bancorp, JPMorgan Chase, Wells Fargo each recommitted to their offices, bucking a local trend of tenants seeking to downsize to offices smaller than 20,000 square feet, the Orange County Business Journal reported, citing CBRE and Cushman & Wakefield.

    All of the renewals came in the Irvine Business Complex, which sits within the John Wayne Airport-area submarket.

    Pacific Premier, based in the city, renewed a 115,400-square-foot office lease at its headquarters at 17901 Von Karman Avenue. The bank takes up half the 12-story tower, whose landlord was not disclosed.

    New York-based JPMorgan renewed 173,200 square feet of offices at 3 and 5 Park Plaza, owned by the Irvine Company. 

    Wells Fargo, based in San Francisco, renewed 53,000 square feet of offices at 2030 Main Street, countering the larger trend of what CEO Charles William Scharf dubbed a “lumpy” office market nationally.

    “In our commercial portfolios, losses continued to be driven by commercial real estate office properties, where we expect losses to remain lumpy,” Scharf said during a second quarter earnings call.

    “Fundamentals in the institutional owned office real estate market continued to deteriorate as lower appraisals reflect the weak leasing market in many large metropolitan areas across the country.”

    Orange County has been taking some of the lumps, with recent leasing relatively weak, according to the Business Journal.

    Businesses in the region “don’t need as much space as they once did,” according to a CoStar analysis of Orange County’s office market last quarter. 

    “Office tenants are more frequently leasing smaller-sized office suites in the area, and just a few leases for over 50,000 square feet of office space have been signed this year, a slowdown from the more than 10 inked last year and an average of 20 signed annually in the past decade,” Jesse Gundersheim, a researcher with CoStar, stated in the analysis. 

    Leasing activity for offices between 20,000 and 50,000 square feet has been slow,  with 30 such deals signed this year — down from the more than 50 such deals signed for both 2022 and 2023, he said.

    Year-to-date leasing volume for offices of 20,000 square feet or more made up 19 percent of all leasing activity — a “historical low.”

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    Owner-users snap up office deals for discount prices in OC


    Google Renews Office Lease for 200K sf in Irvine

    Google renews office lease for 200K sf in Irvine


    Office Leasing in Orange County Picks Up

    Orange County office leasing picks up steam


    At the same time, JLL found OC leasing volume rose 5 percent last third quarter, compared to the previous three-month period, with lease renewals dominating the market.

    This month, Mountain View-based Google renewed its lease for 196,200 square feet of offices at the two-building office campus at 19510 and 19520 Jamboree Road, in Irvine.

    — Dana Bartholomew

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    TRD Staff

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  • Brookfield’s $400M DTLA Office Loan Heads to Special Servicer

    Brookfield’s $400M DTLA Office Loan Heads to Special Servicer

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    Brookfield Asset Management is once again in hot water with a lender for a big downtown Los Angeles office tower.

    The alternative investment giant’s lender for its 1.4 million-square-foot Bank of America Plaza office tower at 333 South Hope Street has transferred a $400 million debt secured by the property to a special servicer, which is usually a sign that a lender foresees a growing chance of a borrower failing to pay off a loan before its maturity.

    The loan was transferred to special servicing in recent weeks, according to Morningstar. The landlord’s looming trouble with the debt stems from losing its third-largest tenant, law firm Sheppard Mullin Richter, which has long rented space within the Bank of America Plaza before inking a 119,000-square-foot lease last year across the street at CIM Group’s 350 South Grand Avenue.

    Sheppard’s lease in Brookfield’s tower expires at the end of the year and the firm plans to vacate, which will pull the property’s occupancy below 70 percent, according to Morningstar.

    Brookfield didn’t return a request for comment.

    Sheppard Mullin accounts for about 13 percent of the building’s net rentable area, according to a May Fitch Ratings report, and is the building’s third largest tenant. The law firm’s lease ends in December after which it reportedly makes the move to CIM Group’s City National 2CAL building at 250 Grand Avenue.

    Sheppard Mullin’s expected departure comes after another law firm, Alston & Bird, left the building after its lease expired in December.  

    That leaves the office tower with Capital Group Companies, which occupies about 27 percent of the net rentable area, as a key tenant. Its lease expires in February 2033, according to Fitch. 

    ​​It’s the latest hit to Downtown’s office market.  

    The area’s second-quarter vacancy rate sat at 32 percent, according to a market report from CBRE. The submarket’s also the most pressured, in the red by about 490,000 square feet and leading the negative net absorption for the greater Los Angeles area in the quarter, CBRE reported.

    Brookfield’s debt on the property matures in September, and refinancing L.A. office towers before the clock runs out has already proven difficult for Brookfield, amid waning demand for commercial real estate due to remote work trends and rising interest rates cutting into real estate values.

    Last year, the landlord lost control of two L.A. towers — the Gas Company Tower and EY Plaza — to a court-appointed receiver due to debt trouble, and it was in technical default on 777 Tower, even as it continued to service debt on the latter. The Gas Company and 777 Tower properties have since been marketed for sale by their respective receivers, but a potential buyer pulled out of a deal to buy 777 Tower earlier this year at a huge discount from its $319 million in debt.

    As of May, the borrower hadn’t disclosed how it plans to handle the Bank of America Plaza maturity or pursue refinancing, according to Morningstar.

    The likelihood of Brookfield failing to pay off the $400 million loan for 333 South Hope on schedule is no surprise to its lender. Fitch Ratings last year labeled the loan with a heightened risk of maturity default, and Wells Fargo, Goldman Sachs, Morgan Stanley and Citigroup — which collectively originated various portions of the property’s debt — were already reporting a loss on the deal.

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    JLL tapped to market Gas Company Tower in DTLA for sale


    Brookfield Deal to Sell 777 Tower in Downtown LA Collapses

    Brookfield’s deal to sell 777 Tower in Downtown LA collapses


    333 South Hope Street in LA

    Another Brookfield DTLA tower loan faces “maturity default risk”


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    Sam Lounsberry, Kari Hamanaka

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  • CoStar Moving HQ From DC After $339M Purchase

    CoStar Moving HQ From DC After $339M Purchase

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    Real estate data giant CoStar Group is officially on the move from Washington, D.C. to northern Virginia.

    Andy Florance’s company is relocating to Central Place Tower, a 31-story office building in Arlington’s Rosslyn neighborhood. The company announced its move officially in a press release on Wednesday, saying it would occupy 175,000 square feet and invest $14 million in the observation deck at 1201 Wilson Boulevard.

    That release was missing a critical detail, however, which was exposed by CoStar’s own vast database of commercial information, Bisnow reported. CoStar paid $325 million for the 552,000-square-foot building, as well as $14.2 million for the land underneath. The price works out to roughly $588 per square foot.

    In a statement, Florance said the purchase was “financially strategic.” The building was 97.8 percent leased at the time of sale. CoStar will likely move in at the end of the year.

    CoStar’s likely move was reported at the start of the month. The property is relatively new, having been completed in 2018. It was developed by JBG Smith, which owned the property in a 50-50 partnership with PGIM Real Estate; the joint venture lease had leased three parcels of the underlying land from private ownership.

    Research and consulting firm Gartner is the anchor tenant of the property, occupying more than half the building. Last year, the company put 318,000 square feet up for sublease. There are also two co-working companies there, where WeWork and Convene take up six floors combined.

    CoStar is expected to house 650 employees at the property, including 500 relocating from the capital, where its headquarters have been based for 14 years. Virginia is providing nearly $5 million in economic incentives to CoStar for the move.

    It’s been a busy week for CoStar, which flooded the Super Bowl airwaves with a marketing blitz featuring Dan Levy, Heidi Gardner and Lil Wayne. The four commercials aired Sunday were part of a $1 billion marketing campaign, largely driven around Homes.com.

    — Holden Walter-Warner

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    TRD Staff

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  • Boston Properties Takes 360 Park Avenue South Stake for $1

    Boston Properties Takes 360 Park Avenue South Stake for $1

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    For the cost of a pizza slice, Boston Properties significantly increased its stake in a Midtown South office property.

    BXP acquired a 29 percent stake in 360 Park Avenue South for the basement price of $1, Crain’s reported. Essentially, the Canadian Pension Plan Investment Board was ready to wash its hands of the investment it made at the vacant building.

    While the pension fund already poured $71 million into the property, its exit will save CPP from some future obligations. The pension plan is being released from $46 million in future funding, as well as $5 million in annual interest payments stemming from BXP’s assumption of CPP’s share of the $220 million mortgage.

    BXP bought the property in 2021 for $300 million, quickly launching an extensive $100 million renovation after the acquisition. The purchase, made in a joint venture with the Steinberg family’s Empire Asset Management, gave BXP a 42 percent stake, as well as leasing and management responsibility for the 20-story, 440,000-square-foot property.

    BXP chief executive officer Owen Thomas said CPP’s decision was indicative “of a change in strategy.”

    In October, San Francisco-based wealth manager Iconiq Capital signed a deal for 70,000 square feet, becoming the first tenant to sign on under the new ownership. The building is 18 percent leased and tenants are expected to start moving in over the summer.

    This isn’t the first time in recent weeks an investor has walked away from a Manhattan property without much to immediately show for it. SL Green recently acquired a 95 percent stake in the leasehold at 2 Herald Square for next to nothing, only paying $7 million to settle the property’s $182 million mortgage.

    CPP’s decision could foretell a reduction in real estate exposure for the pension plan, according to BMO Capital Markets analyst John Kim. The pension fund, which manages more than $400 billion in assets, owns a 49 percent stake in SL Green’s 10 East 53rd Street.

    In 2022, real estate investments from pension funds and large institutions fell 60 percent to $22 billion, according to Preqin.

    — Holden Walter-Warner

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    TRD Staff

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  • Barry Sternlicht on Office Values: “$1.2 Trillion of Losses”

    Barry Sternlicht on Office Values: “$1.2 Trillion of Losses”

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    Barry Sternlicht says the loss of office values in recent years is in the trillions of dollars. 

    The Starwood Capital Group head recently spoke of the “existential crisis” facing the American office market at the iConnections Global Alts conference, Bloomberg reported. Sternlicht spread the blame, pointing towards a dearth of office workers and the Federal Reserve’s interest rate hikes.

    He said offices are now “probably worth $1.8 trillion,” and that “there’s $1.2 trillion of losses spread somewhere” for an asset class once worth $3 trillion.

    Sternlicht added that “nobody knows exactly where” all the losses are. 

    Nobody knows exactly how much either, though.

    Losses in the office market could very well top the $1 trillion mark, but it’s hard to say that with certainty until more sales heat up again. 

    “I don’t know how and when we get back to a place where we put a value on office buildings,” Michael Comparato, the head of commercial real estate at Benefit Street Partners, recently told The Real Deal. “You can’t value it.”

    Despite Sternlicht’s dour disposition towards office values, his recent comments have suggested the downturn may work in Starwood’s favor. Tightening lending by banks creates “remarkable opportunities for private credit,” Sternlicht said during the company’s third-quarter earnings call; at the time, Starwood had deployed $2.7 billion over the preceding 12 months.

    Last year, researchers at New York University and Columbia University calculated that New York City’s offices will lose 44 percent of their pre-pandemic value by 2029, a major shift from a previous estimation of 28 percent.

    — Holden Walter-Warner

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    TRD Staff

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  • Office Complex Worldwide Plaza’s Estimated Value Sinks $500M

    Office Complex Worldwide Plaza’s Estimated Value Sinks $500M

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    SL Green and RXR Realty’s Worldwide Plaza could find themselves in a world of hurt if two of its biggest tenants jump ship.

    Wall Street securities firm Evercore ISI recently reported an implied value for the Midtown Manhattan complex of $1.2 billion, down nearly a third from $1.7 billion in 2017, according to Crain’s. The estimated valuation breaks down to $600 per square foot.

    SL Green and RXR acquired a 49.9 percent interest in the property at the $1.7 billion valuation seven years ago. The majority interest is owned by New York REIT, which is in the process of liquidating.

    The 2 million-square-foot complex includes retail space, residential space and a 49-story office building. 

    Law firm Cravath Swaine & Moore, which occupies a third of the office space and pays roughly half the building’s rent, is set to decamp for Two Manhattan West in August. Japanese investment bank Nomura Holdings is also exploring a move from the property, where it occupies 40 percent of the rentable area.

    Cravath’s 600,000-square-foot space has been available for more than four years, according to Wharton Property Advisors’ Ruth Colp-Haber, who added it would take about $90 million to update the space for an incoming occupant.

    “If they can’t re-lease it and ultimately hand the keys back [to lenders], there’s not a lot of equity value,” Evercore analyst Steve Sakwa said.

    Worldwide Plaza backs a $940 million loan. The upcoming lease rollover resulted in the debt being watchlisted during the fall. The loan comes due in 2027, the same year Nomura can exercise an option to leave its lease six years early.

    New York REIT’s liquidation is creating its own confusion. A report last October from Kroll Bond Ratings said the real estate investment trust indicated it was looking to sell Worldwide Plaza, perhaps by April. A source familiar with the property, however, told Crain’s the building isn’t for sale.

    RXR, SL Green and New York REIT all did not comment to Crain’s about the Evercore ISI analysis.

    — Holden Walter-Warner

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    TRD Staff

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  • Office Vacancy Ticks Up in tony Century City

    Office Vacancy Ticks Up in tony Century City

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    Century City has stood out as an exception in L.A.’s struggling office market. 

    But the upscale district that recently drew such tenants as Sidley Austin and Creative Artists Agency saw its office vacancy rate rise 18.6 percent year-over-year in the fourth quarter, L.A. Business First reported, citing a report by NAI Capital.

    In the final three months of last year, Century City’s office vacancy was 14.5 percent, with a combined 1.4 million square feet of empty cubicles.

    The numbers are a sign of tenants’ resilient flight to quality, NAI Capital Commercial Executive Vice President Michael Arnold told Business First. He called the market an “anomaly” compared with the rest of L.A.

    Arnold, founder of the firm’s Tenant Consulting Group, said office occupants are seeking opportunities as they evaluate their real estate footprints — and rightsize to make sure they’re using space most effectively.

    “The reason we’re seeing so much activity in trophy and Class A is because people like to be in a nicer office,” he told L.A. Business First. “If they’re going to be in there, [they want to] be in a space that actually works more effectively or efficiently for their company.”

    He said most of the empty offices in Century City are in Class B, or older buildings. 

    As rents continue to rise across the board, Arnold said, vacancies in trophy and Class A offices will experience a consistent decline as firms decide to invest in nicer towers.

    “Everything is so high right now that people are asking if it’s worth it to be in a nicer building and pay the higher rates in today’s market, or to wait to see how the election goes and the market is going to be next year,” Arnold told the newspaper.

    “People are relocating in Century City specifically and going to nicer buildings, so you’re looking at big rental rate numbers to justify new construction.”

    Landlords have remained firm on price, driving the average asking rent up by more than 4 percent year-over-year to $5.93 per square foot in the fourth quarter, according to NAI Capital. For subleases, the average asking rent has risen 28 percent year-over-year to $5.78 per square foot per month.

    — Dana Bartholomew

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