SteelWave, Barings Surrender Keys for El Segundo Offices

SteelWave and Barings have handed the keys back for a 164K SF office campus in El Segundo that the partners bought in 2019 for about $64M and then borrowed about $70M to renovate.

The three-story creative office building, known as Grand + Nash, located at 2160 East Grand Avenue near Los Angeles International Airport, will now go to New York Life after SteelWave and Barings signed a deed in lieu of foreclosure, according to a report in CoStar.

The venture had about $53M in unpaid debt on Grand + Nash, which was renovated in 2022 to add a modern lounge with a café, a gym and indoor-outdoor meeting areas. The entire building currently is available for lease, the report said.

Value-add deals like the Grand + Nash office campus are particularly vulnerable as office valuations plummet and interest rates have caused debt service costs to skyrocket.

Barry DiRaimondo, CEO of Steelwave, told CoStar that office values have plunged between 30% and 75%.

Office transactions dropped by more than 40% in Greater Los Angeles in 2023. In recent months, sales have featured properties sold at considerable discounts.

In December, Montana Avenue Capital Partners purchased 1700 E. Walnut Avenue in El Segundo from CBRE Investment Management for $31M, about $260/SF. The property was about 60% leased at the time of purchase.

CBRE Investment Management purchased the property in June 2017 for $48.5 million, or about $405/SF, from JV partners Montana Avenue Capital Partners and The Roxborough Group.

Kennedy Wilson sold an office campus at 400 and 450 North Brand Boulevard in Glendale in December for a nearly a 60% discount. The firm sold 400 and 450 North Brand Boulevard for $60 million, or $136/SF, according to property records filed with L.A. County. Kennedy Wilson acquired the buildings in 2017 for $144 million, or $325/SF.

Office leasing activity was down over 15% in Greater Los Angeles in the fourth quarter and stayed 35% below the historical five-year quarterly average as occupiers continued to focus on efficiency, capital preservation and navigating hybrid work models, according to JLL’s Q4 market report.

Additional Q4 space-givebacks pushed the L.A. office vacancy rate to 26.5%, up from 25.9%, a 60 bps increase quarter-over-quarter. Despite this, JLL reported signs the Los Angeles market has begun to stabilize: overall sublease availability plateaued at over at 9.7M SF, about or 4.6% of total inventory, the report said.

Office rents in Los Angeles were mostly steady through 2023, but concessions designed to induce leasing remained elevated.