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Before the pandemic, El Segundo was one of the fastest growing office submarkets in Southern California, but today the small coastal city is navigating through the stark decline in demand and deflating values of workplace real estate.
Starwood (STWD) Capital and Artisan Ventures could soon lose control of a 257,000-square-foot office building in El Segundo after defaulting on a $84.8 million acquisition loan from MetLife Investment Management. The owners bought the building and parking lot at 1960 East Grand Avenue for $132 million in February 2020 from Brookfield.
The office is about 70 percent leased. After failing to “cure a covenant breach” and pay default interest, the owners are $960,800 behind on the loan, according to The Real Deal, which cited a notice of default filed with L.A. County last month. In 2022, the owners planned to redevelop the parking lot portion of the property into a 94,000-square-foot office with a four-level parking garage.
The two companies are also struggling with the Pacific Coast Towers, a 1.6 million-square-foot office building next to 1960 East Grand. The owners have reportedly been trying to sell the asset and also work with lender Morgan Stanley over $500 million in debt tied to the three towers.
El Segundo saw more than 75,000 square feet in negative net absorption in the fourth quarter last year, and more than 881,200 square feet of negative absorption overall on the year, according to CBRE’s most recent office report. The submarket just south of the Los Angeles International Airport has a vacancy rate of more than 25 percent.
Gregory Cornfield can be reached at gcornfield@commercialobserver.com.
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