The 10 Steepest Drops In SoCal Property Values This Year
Some CRE industry pros think the Los Angeles market has scraped bottom in 2024, meaning there is no way to go but up from here. After a year of steep drops in property valuations, many of the region's highest-profile buildings, especially offices, have a long road to climb to reach their prepandemic heights.
A Morningstar collection of the Los Angeles-area CMBS loans that had the greatest losses from issuance appraisal to the most recent appraisal finds that some properties have seen their values drop by as much as 70%. Retail and hotel properties, while not seeing such dramatic falls, also appear on a list of the top value declines.
Office properties made up six of the top 10 properties with the largest valuation drops, but that still might not be a totally accurate representation of the distress in the market.
Many office properties are performing but begin to have issues at maturity, a reminder that for some properties on the list, there is more to their struggles than just not having enough cash to make a mortgage payment, Morningstar Credit Senior Vice President David Putro said.
Owners of office buildings that need to refinance are often struggling to do so, which leads to their placement in special servicing, in turn triggering appraisals and stark new assessments of their values.
Downtown Los Angeles has a small, dense office submarket that has been especially hard hit by the shift away from five days in the office.
“It is tough to compare market to market,” Putro said, but if he were pressed to identify some of the worst office markets in the country, “LA is definitely up there.”
The Gas Company Tower
Value lost: $417.5M, a 66% fall
2020 appraisal: $632M
2024 appraisal: $214.5M
A Brookfield-controlled entity turned over the keys for the Gas Company Tower in 2023. SoCal Gas, which occupied over 200K SF in the Downtown building of the same name, plans to leave its space there by spring 2026. The county of Los Angeles recently closed on a $200M purchase of the property.
Bank of America Plaza
Value lost: $416M, a 69% fall
2014 appraisal: $605M
2024 appraisal: $188.9M
The 1.4M SF DTLA building's occupancy dropped below 80% earlier this year and is expected to fall below 70% after the end of the year, when the property's third-largest tenant, legal services firm Sheppard Mullin Richter, vacates. This property is also Brookfield controlled; it moved to special servicing in July, but a representative for Brookfield indicated at the time that the firm might try to hold onto this property instead of turning the keys over as it had done with other Downtown towers.
Santa Monica Place
Value lost: $367M, a 59% fall
2017 appraisal: $622M
2024 appraisal: $255M
This Santa Monica mall owned by Macerich suffered some hits in 2021 when two of its main anchors, Bloomingdale's and an ArcLight Theatre, vacated and left more than 100K SF empty. Macerich turned the property over to its lenders in June after defaulting on a $300M CMBS loan. While top malls have seen their fortunes rebound from the pandemic, many others have struggled to regain their footing.
EY Plaza
Value lost: $296M, a 66% fall
2020 appraisal: $446M
2024 appraisal: $150M
Downtown LA’s EY Plaza was owned by the same Brookfield-controlled entity that owns Bank of America Plaza and walked away from the Gas Company Tower. The high-rise has been in receivership since 2023, shortly after Brookfield became delinquent on a $275M loan on the property.
Westminster Mall
Value lost: $67M, a 39% fall
2014 appraisal: $177M
2024 appraisal: $104M
The portion of the Westminster Mall owned by Washington Prime Group saw its value decline 39%. A sale was moving forward in the fall, The Real Deal reported, but the status of the sale is unclear. Redevelopment plans for parts of the mall site, portions of which are held by three additional owners, were in the works at the beginning of 2024.
16530 Ventura Blvd.
Value lost: $25.7M, an 86% fall
2013 appraisal: $30M
2024 appraisal: $4.3M
Jamison is also the owner of this property, which property records indicate it purchased in 2002. According to Morningstar’s credit database, it is 42% occupied and faced a maturity default at the beginning of this year. This 1980s-era office building in Encino has a $17.4M loan balance, according to Morningstar.
Sixty Hotel Beverly Hills
Value lost: $25.5M, a 30% fall
2018 appraisal: $$85M
2024 appraisal: $59.5M
The $40M loan tied to this 118-room Beverly Hills hotel has a $38M balance, according to Morningstar. The maturity date was pushed out at least three times, Commercial Observer reported earlier this year. The Sixty Collective, which owns the hotel, also had financial trouble this year at a New York hotel property.
Fremont Moreno Third Street
Value lost: $23.65M, a 67% fall
2014 appraisal: $35.3M
2024 appraisal: $11.6M
The $20.5M loan connected to this cluster of retail storefronts along Santa Monica’s Third Street Promenade has a loan balance of nearly $17.9M. The Third Street Promenade, once a popular shopping destination just blocks from the beach, is no longer drawing the crowds it once did.
600 Commonwealth Ave.
Value lost: $18.6M, a 37% fall
2013 appraisal: $50M
2024 appraisal: $31.4M
This former courthouse in Westlake dates to the 1970s and has a loan balance of just under $32M. It had been tapped by owner Jamison for a conversion to housing. The loan is slated to mature in January, according to Morningstar data.
Plaza Riviera
Value lost: $4.1M, a 25% fall
2013 appraisal: $16.5M
2024 appraisal: $12.4M
This low-rise Redondo Beach office property was built in 1987. Just a couple of blocks from the beach, it has ground-floor commercial tenants and office space above. Its original loan balance was nearly $12M, approximately $9.6M of which is still owed.