KBS Plans Sale Of Union Bank Plaza In DTLA For $155M
After nearly a year on the market, the Union Bank Plaza in downtown Los Angeles is poised to sell for $155M — far less than the $250M it was once expected to command.
Documents filed with the Securities and Exchange Commission show that the KBS-created real estate vehicle KBS REIT II, which owns the property, on July 20 entered into an agreement to sell the 40-story, 701K SF tower to Waterbridge Capital. The sale is expected to close Oct. 19.
That sale price is significantly less than the $208M KBS Realty Advisors paid when it purchased the tower at 445 South Figueroa St. from Hines in 2010, property records show.
The REIT’s announcement notes that “there can be no assurance that the Company will complete the sale” of the property to Waterbridge. That’s not just boilerplate, as at least one sale of this property has fallen through already this year: a potential sale announced May 18 to Harbor Associates LLC for $165M did not occur as planned.
A notice to shareholders in early June stated that following the inspection period, Harbor Associates elected not to proceed and the agreement was terminated June 16.
The property was listed for sale because KBS REIT II in 2020 voted to liquidate its assets. When the property hit the market in August 2021, it was 62% occupied, according to marketing materials. SEC filings from the end of March state that as of the end of that month, Union Bank Plaza was 64% occupied.
It’s possible that number has since fluctuated. Documents filed with the SEC indicate that Union Bank, the anchor tenant, amended its lease agreements in 2019 to allow it to surrender just over 131K SF of its office space and about 12K SF of its retail space between May 31, 2020, and May 31, 2022. The lease for the bank’s remaining space — nearly 165K SF — is set to expire in May 2035.
In a May 26 presentation to shareholders, leadership shared that Union Bank Plaza was the REIT’s last remaining property to liquidate and that “due to the uncertainty in the timing of the sale of the company’s remaining real estate property and the estimated cash flows from operations, actual liquidation costs and sale proceeds may differ materially from the amounts estimated.”
The REIT attributed the challenges of selling the property at a desirable price to some familiar culprits.
"Demand for office space in downtown Los Angeles significantly declined as a result of the COVID-19 pandemic, with employees continuing to work from home," KBS said in a report filed with the regulatory agency at the end of March. "In addition, with rising interest rates, prospective buyers are challenged to obtain favorable financing, which along with the lower demand for office space, is impacting the projected cash flows of the property and the purchase price prospective buyers are willing to pay for the property.”
KBS adjusted its expectations for the property, noting that, after closing costs and fees, it now estimates the net realizable value of liquidating the property to be some $24.4M less than previously thought.
