An office has traded hands in downtown Los Angeles for nearly double the area’s typical sales value, offering a positive recovery signal for one of the nation’s hardest-hit commercial real estate markets in recent years.
LA Metro, the county’s transit group, paid $45 million for a 106,004-square-foot office building at 500 S. Santa Fe in the city’s Arts District, according to people with knowledge of the deal. Development firm Steelwave sold the building for about $450 per square foot, well above downtown’s $240 average and higher than the $342 per square foot value average in greater Los Angeles.
The off-market sale arrives as Los Angeles sees a rebound in office trading activity, with transaction volume in the third quarter up 56% over the same period last year, according to CoStar data.
“LA office sales are up majorly compared to last year, signifying we might have finally bottomed out and back on the upswing,” said Catherine Yeh, CoStar director of market analytics for Los Angeles.
The Metro deal follows Hudson Pacific Properties’ January sale of the nearby 102,177-square foot Maxwell office campus to MidFirst Bank for $46 million, or $450 per square foot. The similarity in deal size and price shows that the downtown LA office market is holding its value rather than eroding, Yeh said.
Even so, the city’s office vacancy rate is holding at a historic 16%. Downtown LA’s vacancy rate of 22% is well above the nation’s 14% average.
The recent sale — expected to be used as an office for LA Metro — is still a discount over the 2021 price of $80 million, or $509 per square foot.
LA Metro, a division of the County of Los Angeles that runs its public transit systems, already owns a three-story, 86,000-square-foot property next door at 590 S. Santa Fe Ave that it developed in 2019. That property includes a warehouse dedicated to storing spare parts, 11 maintenance bays for repairing Metro vehicles, a tire shop, a machine shop, a vehicle-washing space and offices.
The County of Los Angeles owns 146 properties totaling 12 million square feet in the region.
Arts District renaissance
San Francisco-based seller Steelwave purchased the property as part of a two-building, 157,45-square-foot portfolio called The Switchyard from a private development firm. Both buildings were vacant at the time of sale.
A downturn in the expansion of tech tenants poured cold water on leasing efforts, preventing Steelwave from finding tenants and motivating it to sell the properties off piecemeal. Steelwave sold the other building, a 51,243-square-foot property at 540 Santa Fe, to Los Angeles-based DTLA Law Group for $20 million, or $396 per square foot, earlier this year.
Downtown has faced persistent challenges with homelessness and safety perceptions, both of which have contributed to the high vacancy rate and a growing inventory of sublease space.
The Arts District has stood out as a better-performing segment within downtown, buoyed by creative tenants drawn to its walkable streets, distinctive spaces and close ties to content production. Recent new leases include fast-growing cookware company HexWare, which leased 39,000 square feet in the neighborhood in July.
In the early 1900s, the Arts District was a rugged industrial area filled with warehouses and factories. By the 1970s, however, it was transforming into a creative haven as artists repurposed abandoned buildings into live-work spaces, paving the way for the neighborhood to become a hub for design and dining.
The neighborhood is also preparing to welcome new residents. Last year, the Los Angeles City Planning Commission signed off on Vella Group’s $1.4 billion proposal to revamp a former cold storage facility at 670 Mesquit into a mixed-use development featuring housing, office space and retail.
For the record
The seller was represented in the deal by Cushman & Wakefield’s Michael Condon Jr., Pete Collins, Steve Marcussen, Brittany Winn, Erica Finke and Reif Gratsch. The buyer was represented in the deal by Cresa’s Lawson Martin and Clayton Hovivian.