DTLA Creative Office Campus The Switchyard Trades for $80M

San Francisco-based investor SteelWave has acquired a new construction creative office campus in Downtown Los Angeles, known as The Switchyard, for $80 million. CEG Construction developed the property over the last two decades, and it was vacant at the time of the sale.

The Switchyard is a two-building low-rise office asset totaling 150,000 square feet. The newest addition to the property was built in 2019 and totals 100,000 square feet. The second building was built in 2012, totaling just over 50,000 square feet. Both buildings include onsite parking. Mike Condon Jr., Steve Marcussen, Erica Finck and Bailey Dawson with Cushman & Wakefield represented both buyer and seller in the deal.

SteelWave plans to invest additional capital into the property to upgrade the exterior, upgrade the onsite amenities, which include outdoor seating, enhanced landscaping and upgraded lobbies, and it will improve the signage and asset branding.

The deal is a beacon of hope for the office market, which has been rocked by the pandemic, particularly in gateway cities like Los Angeles. According to the team that brokered the deal, there was strong institutional interest in the sale, and the activity is evidence that a swift recovery is coming for the office market.

Despite this deal, many market reports are predicting a slower recovery of the office market. Marcus & Millichap said the market would be challenged through 2021, predicting in a recent report that occupancy and rental rates would continue to fall this year. The research forecasts that office vacancy will grow 160 basis points this year to 18.5%, and office rents will fall 1.4% to $37.50 per square foot. While the report also noted the potential for recovery thanks to vaccine distribution, that road will likely be long. In the first quarter, leasing activity improved, but most leased were less than 10,000 square feet, showing a trend favoring smaller spaces, and new construction deliveries will increase market supply by 1.1%, putting additional downward pressure on the already struggling market.

In addition to the sale, Cushman & Wakefield are also handling leasing and secured financing for the deal on behalf of the seller. Pete Collins, Brittany Winn, Scott Menkus, and Alexa Delahooke also provided market leasing advisory, while Rob Rubano, Brian Share, Joseph Lieske, Ernesto Sanchez, Keith Padien, and Greg Napper assisted the buyer with financing.