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REA
June 17, 2020  

Silverstein Eyes LA Tower at Steep Discount

Silverstein Properties is in advanced talks to buy U.S. Bank Tower in Los Angeles at a valuation well below what the property was expected to fetch when it hit the block early last year.

The owner, OUE of Singapore, put the 1.4 million-square-foot skyscraper up for grabs in January 2019, with expectations that bids would reach $700 million, or roughly $500/sf. New York-based Silverstein is negotiating a price in the range of $425 million to $450 million, or up to $321/sf. Eastdil Secured is brokering the deal.

If completed, the trade would be one of the largest in the country since the investment-sales market largely ground to a halt in March. The coronavirus pandemic and resulting economic downturn have made it difficult to value properties, and buyer interest has focused on core buildings with long-term leases.

U.S. Bank Tower’s occupancy rate is in the range of 80-85%, sources said. The surrounding Downtown Los Angeles submarket has 36.3 million sf of office space that was 80.3% leased at the end of the first quarter, compared to 86% for Greater Los Angeles, according to Newmark. The brokerage said in a recent report that “the spread of Covid-19 puts great pressure on Los Angeles’ office market, which is already in the late stage of its cycle.”

Market pros note that amid concerns about social distancing, it’s an especially difficult time to pitch a tall office building with multiple tenants sharing banks of elevators. In addition, U.S. Bank Tower normally gets a significant amount of revenue from a tourist attraction — the Skyspace complex on the top floors, with a restaurant, an observation deck and an exterior reinforced-glass slide — which has been closed since mid-March.

The 72-story building at 633 West Fifth Street, one of the tallest on the West Coast, was developed by Maguire Properties in 1989. OUE, a public investment shop that runs several REITs, acquired it in 2013 from Maguire successor MPG Office for $367.5 million. At the time, the occupancy rate was 50-60%.

OUE signed U.S. Bank to a 10-year renewal of its lease on 105,000 sf of office and retail space. It then embarked on a $50 million renovation to boost the building’s profile and attract a wide range of tenants.

After marketing the property early last year, OUE changed its approach. By September, it was seeking to refinance it with a loan of up to $415 million. However, that effort was apparently dropped as well, and the owner turned toward the deal with Silverstein.

The purchase appears to be Silverstein’s first major buy on the West Coast. The developer, led by Larry Silverstein, is best-known for rebuilding the World Trade Center complex in Lower Manhattan after the 9/11 terror attacks. But the firm has been expanding its investments beyond New York and last year made its first acquisition in Philadelphia. It was part of a partnership that paid $451.6 million to Equity Commonwealth of Chicago for a 1.3 million-sf office tower at 1735 Market Street.

U.S. Bank Tower is a prominent piece of the Los Angeles skyline and has been featured in numerous television shows and movies.