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With office demand shrinking, another building has traded hands for a considerable loss in Downtown Los Angeles — and just before a law took effect that would have raised the transfer tax by 5.5 percent, or $2.3 million on this particular deal.
Ray Golbari’s Elat Properties paid $41.9 million, or about $195 per square foot, for the office building at 801 South Grand Avenue, Commercial Observer has learned. CIM Group, one of the most prominent developers in L.A., sold the 215,100-square-foot property before the Measure ULA tax took effect on April 1. CIM acquired the property for $52.5 million in December 2013, records show.
It’s currently 75 percent occupied, according to Elat, and the company plans to move into 20,000 square feet for its own new headquarters. Hanmi Bank provided acquisition financing for the sale, but Elat did not disclose the value of the loan.
“It’s a generational asset,” Aviel Golbari, vice president of Elat Properties, told CO. “We’re a family office based in downtown, and we plan to move our headquarters there and to own the building long term. We’re going to aggressively start leasing the office and bring new improvements. We see a future in office space and like our basis.”
He added that Elat is in talks with a tenant to reopen the retail portion, but could not disclose the name.
“Supply isn’t just staying stagnant, we’re seeing some office being taken off the market and converted to residential,” Golbari said. “There is not much new office development in L.A., and even though overall demand is down, supply is staying stagnant. We think with time, demand is only going to increase for a property like this.”
CIM Group did not immediately return a request for comment.
Demand for office space in L.A. has slowed considerably as the market faces more financial distress and sinking property values. L.A. County closed just $154 million in office sales in the first two months of 2023 at an average of about $254 per square foot, according to a report recently by CommercialEdge. That mark, and the deal for 801 Grand, is far below the average of $420 per square foot from one year ago.
Brookfield notably defaulted on $784 million in loans on two office towers downtown, and, similar to 801 Grand, KBS sold the Union Bank Plaza tower downtown for a big loss in March. Other landlords have also put landmark properties such as the PacMutual Building and the 62-story Aon Center on the market for steep discounts.
To make matters worse for troubled owners and investors, L.A.’s Measure ULA took effect at the start of the month. It increases transfer taxes by 5.5 percent on deals over $10 million.
Newmark’s Kevin Shannon and Rob Hannan brokered the sale for 801 Grand.
Gregory Cornfield can be reached at gcornfield@commercialobserver.com.
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