Owner-Users & Private Buyers Dominate Los Angeles Office Transactions in 2023!

If you want to be a rockstar business banker in 2024, you need to figure out the best places to go hunt for business loans! It is not that hard to figure out. Let the data guide you to where you need to go hunting! Otherwise, the new year could be a big fail for you!

The folks at Costar recently published an article about who acquired office properties in 2023. Owner-Users and Private Buyers accounted for 85% of office acquisitions! These are attorneys, medical professionals, other professional services companies and real estate investors that are jumping at the opportunities in the depressed office market. You might want to dust off those your lead lists and zero in on these professionals! If you can underwrite investor CRE loans, you will have an even better chance of filling up your pipeline. Here is what the folks at Costar had to say:

With the concerns Los Angeles’ office sector faces, including record vacancy and increasing receptiveness to hybrid work strategies, some investors have shifted attention away from office investments. This shift resulted in restrained activity in 2023 and a shift in buyer profiles. Private buyers and owner-users were notably more active in 2023 than in years past, whereas institutional and private equity buyers backed away from the sector. During 2023, private buyers were behind 55% of all transaction activity on a dollar basis. Owner-users made up almost 30% of buyers. From 2015 to 2019, the five years preceding the COVID-19 pandemic, private buyers and owner-users represented, on average, around 45% and 10% of annual buyer activity, respectively.

In contrast, institutional buyers were behind 10% of dollar volumes in 2023. From 2015 to 2019, they were behind around a quarter of activity. Private equity capital sources accounted for just over 5% of dollar volumes in 2023, less than half their usual buyer share. Many private buyers active in the market are looking for assets at a clear discount. Representative of a recent such sale, in December, a private buyer purchased 400 and 450 N. Brand Blvd. in Glendale from the real estate investment trust Kennedy Wilson for $58 million, or $130 per square foot. The two buildings comprised 440,700 square feet, with 364,700 square feet of office space and 76,700 square feet of retail space. The buildings were 61% leased, and the property was marketed as a value-add opportunity. Existing tenants — which include 24-Hour Fitness, Cigna and Regus — had a weighted average remaining lease term of 5.5 years. No loan was recorded at the time of sale, making it likely the buyer paid all cash. The transaction represents a 60% loss for Kennedy Wilson, having acquired the buildings in May 2017 for $144 million, or about $325 per square foot. It also sold well below its previous sale price in January 2004 for $117 million, or $265 per square foot.

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