Companies are buying their buildings instead of renting them as office values bottom out around Los Angeles

As the office market hits bottom after a long decline, tenants are moving to buy their own buildings.

Particularly in downtown Los Angeles, where sparkling high-rise buildings have plummeted in value since occupancy plummeted during the pandemic, tenant businesses are seizing the opportunity to own. It never fully recovered, but investors believe the market has at least stabilized.

Among the latest to snap up the skyscraper is fund manager Capital Group, which agreed to pay about $210 million for the 55-story Bank of America Plaza at the top of Bunker Hill, where its offices are located. Other companies choosing to buy over lease include Riot Games and the Los Angeles Department of Water and Power.

“We knew we would be the best host we could have,” said Mike Gitlin, Capital Group Chief Executive Officer.

Newmark real estate agent Kevin Shannon said there are some good reasons why renters want to own a home right now, starting with timing.

“Everyone knows we’re near the bottom of this cycle, and it’s always good to buy on the dip,” he said.

Downtown has suffered from an extreme shortage of office space since the construction frenzy of the 1980s and early 1990s. The absence of rent-paying tenants, which has driven down office values, has become even more acute since the pandemic. About 40% of office space in the financial district was available at the end of last year, according to CBRE. The overall vacancy rate in the city center increased from 14% to 34% in 2019.

Investors are finding deals involving trophy properties like San Francisco’s Transamerica Pyramid, a 48-story tower that has served as a symbol of the city since its completion in the 1970s. Yoda PLC, a European investment company, recently paid approximately $690 million for the building; This reflects a deep loss for the previous owner, who invested nearly $1 billion to purchase and develop the famous skyscraper, according to CoStar.

One sign that falling values ​​have bottomed out is that office rental levels appear to have stabilized, Shannon said.

“We are far enough past COVID that office users are comfortable” and know how much space they will need in the future, he said.

He said recent changes to federal tax laws regarding property depreciation benefits have increased the incentive, and with office leasing improving across the country, lenders are looking more favorably on supporting office purchases.

White shoe companies can protect their properties in their own image by owning their own buildings.

Capital Group It is currently the anchor tenant at Bank of America Plaza and will consolidate other offices there once the sale is completed.

“The best way to provide a great environment in downtown LA is to create what we call a vertical campus,” Gitlin said. “It was this unique opportunity where the price was much lower than it had been in the past, and it was for sale.”

Capital Group declined to confirm the reported $210 million sale price, but the building was last valued at $212.5 million in late 2024, according to Bloomberg. This figure was 605 million dollars 10 years ago.

Shannon said Capital Group paid about $150 per square foot for a property that would cost up to $800 to build at current costs. It will eventually occupy the majority of the 1.4 million-square-foot building, housing 2,100 employees.

Real estate data provider CoStar said residential occupiers have increased as key players in the Los Angeles office market and now account for nearly half of all deals, while institutional investors’ share of acquisitions has fallen from 45% to 26%.

Buyers include office users in the public sector. The city of Los Angeles plans to purchase a 35-story tower downtown for use by the Department of Water and Power.

In the stagnant office market in downtown Los Angeles, some tenants are looking to buy their own buildings.

(Robert Gauthier / Los Angeles Times)

Manulife US Real Estate Investment Trust opened this week at 865 S. Figueroa St. He said that he would sell his high-rise building at 92.5 million dollars, pending the approval of Los Angeles authorities. Its value was determined as 248 million dollars.

In a statement, the DWP confirmed its negotiators will present a proposal to purchase the property on Figueroa Street to the Board of Water and Energy Commissioners next month. The polished red granite-clad building north of LA Live has been a prestigious corporate address since its completion in 1990.

“If approved, this acquisition would provide the office space necessary to support the expansion of LADWP’s workforce, consolidate operations, and maintain reliable water and electricity delivery to the city of Los Angeles,” said spokeswoman Renee A. Vazquez.

Another major public buyer of a downtown office building is Gas Co. in 2024. It was Los Angeles County that purchased the Tower for $200 million; This is a big drop from its $632 million valuation in 2020. County officials said at the time that the foreclosure sale was too good a deal to pass up.

The district is slowly moving workers into the 55-story skyscraper at the foot of Bunker Hill, which was considered one of the city’s most desirable office buildings when it was completed in 1991.

A major tenant takeover took place on the Westside in December, when video game giant Riot Games purchased its five-building headquarters campus in the Sawtelle neighborhood for $150 million; this was one of the most expensive Los Angeles office sales of the year.

The campus is home to a movie studio-like environment that includes movie theaters and one of the largest commercial kitchens on the Westside, offering a wide variety of meals that change daily and are available free of charge to company employees. The company’s well-known products include “League of Legends,” a massively multiplayer online battle arena video game played by millions of people around the world every day.

Chief Executive Dylan Jadeja said the colorful campus “unlocks the creative heart and soul of Riot.” “When the opportunity to own property arose, we knew it made sense to invest for the long term. It allows us to continue cultivating an environment that reflects our mission and allows Rioters to do the best work of their lives.”

The Sawtelle complex has been the global headquarters of Riot Games since 2015.

“It has become much more than an office for us,” Jadeja said. “This is where Rioters are pushing the boundaries of game development in service of delivering incredible games and experiences to players around the world.”