Downtown L.A.’s Union Bank Plaza Fetches a Whopping $332 PSF

The unencumbered 637,300-square-foot office tower did not come cheap.

September 16, 2010
By Barbra Murray, Contributing Editor

In a transaction valued at $208 million, KBS Real Estate Investment Trust II has snapped up the iconic Union Bank Plaza in downtown Los Angeles from Houston-based international real estate firm Hines’ U.S. Office Value Added Fund. Though, at $331.56 per-square-foot, it sold at a price well below replacement cost, the unencumbered 637,300-square-foot office tower did not come cheap.

“You could not buy the land and build an office building in downtown Los Angeles for less than $500 per square foot, but in historical terms, this is one of the highest prices per square foot paid for a downtown Los Angeles office building,” David Doupé, an international director with commercial real estate services firm Jones Lang LaSalle, told CPE.

JLL marketed the property on behalf of Hines and represented the company in the transaction. And there were more than a few investors willing to pony up the big bucks for the premier office asset. “The competition was fierce,” he said. “This is a core asset. It possesses all the characteristics investors want–a strong rent role, high credit tenancy and long-term leases in a market with high barriers to entry.”

Standing at 445 South Figueroa Street near the 110 Freeway, the 40-story Union Bank Plaza first opened its doors in 1967 to serve as Connecticut General Life Insurance Company’s West Coast headquarters. The Albert C. Martin & Associates-designed high-rise features 607,500 square feet of premier office space, a two-level plaza with 19,800 square feet of retail space and a four-level parking facility accommodating 914 vehicles. With an occupancy level of 96 percent, the tower’s tenant roster is nearly full, featuring the likes of, of course, lead tenant Union Bank, which occupies 55 percent of the office space, as well as law firm Nossaman L.L.P. and executive suite operator Corporate Office Centers.

In 2005, Hines’ U.S. Office Value Added Fund paid a Walton Street Capital-sponsored fund a reported price of approximately $145 million for Union Bank Plaza, marking the Hines fund’s fourth acquisition. A short-term hold was planned for property all along. “Hines wanted to enhance the building, renew the Union Bank lease and then sell,” Doupé said. “They were just following through on the business plan.”

While industry experts believe the office market has hit bottom in Los Angeles, it has yet to regain the luster it lost over the last couple of years. Regardless, Hines believes that the timing was right for the sale. “We had implemented all of the elements we identified to add value, such as improving occupancy, making renovations and renewing and expanding the anchor tenant’s lease, and believed Union Bank Plaza’s long term, stable income would be attractive in today’s real estate capital markets,” David J. Congdon, Senior Vice President with Hines, told CPE. And so it was.

KBS REIT II partially financed its acquisition of Union Bank Plaza with a $119.3 million five-year loan; $105 million of the interest-only loan comes with a fixed rate of 3.445 percent.

Acting through its affiliated entities, KBS Realty Advisors has been on a bit of a buying binge, having purchased properties totaling 4.4 million square feet in premier U.S. markets from one coast to the next this year. In July alone, KBS REIT II bought the 1.3 million-square-foot office skyscraper at 300 North LaSalle Drive in Chicago for $655 million and the 157,900-square-foot Horizon Tech Center office property in San Diego for $40.5 million. July also brought the $68.4 million purchase of the 186,700-square-foot Dulles Station East I, a suburban Washington, D.C., office building located within the 63-acre, mixed-use Dulles Station in Herndon, Virginia, as well as the 400,100-square-foot Dallas Cowboys Distribution Facility in Irving, Texas, for $19 million.