02/22/2012

Tishman Shops LA Office Tower With Upside

Tishman Speyer is pitching a downtown Los Angeles office building as a rare opportunity to acquire a trophy property with upside potential.

The 701,000-square-foot tower, at 400 South Hope Street in the Bunker Hill district, is only 80% leased, after losing some tenants during the downturn. That’s below the district’s 88.7% occupancy rate for Class-A space.

Market pros think bids could reach $255 million, or $363/sf. CBRE has the listing.

Tishman acquired the 26-story property in 2005 from the retirement plan of the main tenant, law firm O’Melveny & Myers, for $245.6 million. At the time, the occupancy rate was 95%.

Tishman completed a renovation that focused on the spacious lobby, where Italian marble flooring, wood veneer walls and an interior glass wall were installed.

In 2008, Tishman listed the building with Cushman & Wakefield, hoping to get as much as $340 million. But, with the Los Angeles office market dragged down by the recession and financial crisis, the offering ended up being pulled.

In 2009, consulting firm McKinsey & Co. vacated 79,000 sf, and O’Melveny & Myers downsized its space the following year by 70,000 sf, to 230,000 sf. As a result, the building’s cashflow fell below the level needed to service the $171.5 million securitized mortgage, causing the loan to be put on a servicer watch list. The cashflow inched up to 1.1 times the amount needed for debt service over the first nine months of last year, according to the latest data available. The mortgage matures in October.

Lately, things are looking up in the Los Angeles office market, and Bunker Hill is faring better than most areas. The district’s 88.7% Class-A occupancy rate exceeds the 82.5% average for all of downtown Los Angeles. Over the past 11 years, the district’s rate has averaged 91.1%, much better than the 83.7% downtown level, according to CBRE.

A partnership including O’Melveny & Myers retirement plan spent some $250 million developing 400 South Hope in 1983. Once known as Mellon Bank Center, the building is one of a handful of top-tier office properties in Bunker Hill, along with Wells Fargo Center, One California Plaza and Two California Plaza.

Just last week, Tishman put another high-profile California office building on the block. The 557,000-sf tower, at 555 Mission Street in San Francisco, is listed with Eastdil Secured. Its occupancy rate is 88%. The office-market recovery is further along in San Francisco than in Los Angeles, thanks to the Bay Area’s strong technology sector. Market players think bids for 555 Mission Street could top $750/sf, or $418 million.

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