One of the tallest office buildings in downtown Los Angeles has been acquired by a major Hollywood real estate investor, CIM Group, in an unusual portfolio sale that included a regional shopping center in Montclair, a high-rise in Anaheim and a hotel in Bakersfield.
The crown jewel of the seven properties acquired by CIM Group is Two California Plaza, a prestigious but troubled skyscraper on Bunker Hill where gleaming office towers erected during the last building boom decades ago are having a tough time attracting tenants.
In recent years, the center of gravity for downtown development has shifted a few blocks south, where new housing, bars and restaurants have transformed the financial district — all within walking distance of Staples Center and the emerging South Park neighborhood.
But Bunker Hill is poised for a comeback as new owners bring millions to invest in property improvements near Walt Disney Concert Hall and additions including the $130-million Broad Museum come to life, said Shaul Kuba, a principal at CIM Group.
"Bunker Hill already has a phenomenal collection of real estate," including US Bank Tower, the tallest building in the West, he said. "With all the renovation and repositioning that is happening, you will start seeing some serious tenant moves."
As part of the move, CIM plans to jazz up the restaurants and shops in the already-popular courtyard, which lies at the foot of two office towers and the 17-story Omni Los Angeles Hotel.
The encompassing development, called California Plaza, whose courtyard includes elaborate dancing-water fountains, is at the top of the funicular railway Angels Flight. The plaza is also linked to the Museum of Contemporary Art and an apartment tower.
Two California Plaza, 52 stories tall and housing nearly 1.3 million square feet, is considered one of the region's premier office buildings and is home to lawyers, accountants, bankers and other professionals. It is, however, only about 60% occupied.
Office vacancies also trouble US Bank Tower, which is also about 60% leased, and other Bunker Hill skyscrapers that once belonged to MPG Office Trust. MPG was downtown's largest office landlord for many years, but the Los Angeles company went out of business in 2013.
New York landlord Brookfield Office Properties Inc. bought the bulk of MPG's downtown office portfolio, though US Bank Tower was acquired by Singapore investor Overseas Union Enterprise. Now Two California Plaza belongs to CIM Group after it passed through the hands of a Maryland-based manager of distressed properties.
All the new owners have vowed to spruce up MPG's former buildings and court new tenants by putting up money for their office space improvements that MPG was unable to provide in its waning days. The ascendancy of three well-financed landlords sets the stage for a battle over tenants.
"We are going to be very aggressive," Kuba said. "We are going to be very competitive with other buildings."
The neighborhood, which was scraped bare during a slum-clearance project in the 1950s and 1960s, is seeing substantial investment. The $56-million Grand Park, connecting the Music Center and City Hall, opened in 2012.
Long-empty lots on Grand Avenue, Bunker Hill's main street, are finally being filled. Commanding the spotlight now is the emerging Broad Museum, which will be linked by a public outdoor plaza to a $120-million apartment tower that is also under construction.
Across Grand Avenue from Walt Disney Concert Hall, New York developer Related Cos. is planning a $750-million residential, hotel and retail complex designed by architect Frank Gehry, who also designed the Disney.
CIM's Kuba would also like to see Bunker Hill get a grocery store, a large fitness center and neighborhood-serving businesses.
"So many things can be done there," he said. "Bunker Hill will be able to compete head-to-head with Century City."
Bunker Hill could benefit from making the high-rises, tailored for corporate tastes of the late 1980s and early 1990s, attractive to L.A.'s growing cadre of creative firms, which have so far clustered mostly on the Westside, real estate broker John Zanetos of CBRE Group Inc. said.
When idled Angels Flight is back in operation, the railway will again connect Bunker Hill with the gentrifying Grand Central Market on Hill Street and the city's historic core. Downtown's office market, which has been weak for more than two decades, may yet recover, he said.
"There is certainly a lot of vacancy to work through," Zanetos acknowledged. "But there have been a lot of changes in leaps and bounds. Residential is leading the wave, and it will be followed by people who want to work downtown as well as live there."