US Bank Tower in downtown Los Angeles, the tallest skyscraper in the West for decades, is on the block as its Singaporean owners test the limits of the city’s burgeoning real estate investment market.
Standing 72 stories on Bunker Hill, the building holds a prominent position in business and in popular culture. It has appeared in numerous movies and even been fictionally destroyed for dramatic effect in such films as “Independence Day,” which saw aliens blow up the tower as they began their invasion of Earth.
The property owned by OUE USA Services Corp., the American division of Singapore-based landlord and developer OUE Ltd., could command more than $700 million based on recent downtown office sales.
OUE appears to be executing a classic real estate play on a grand scale — buy a good building that has fallen on hard times, make improvements and sell at a profit — rather than getting out before any market downturn were the economy to begin to slow.
The owner “believes it’s an opportune time to investigate the market,” said Peter Johnston, a senior vice president at OUE in Los Angeles. “They put a lot of money into the building and now it’s time to see what kind of return they can get.”
OUE acquired the building for $367.5 million in 2013, when it was roughly half empty. Among its lost anchor tenants was Arthur Andersen, a high-powered accounting firm that went out of business in 2002 after it was found guilty of criminal charges connected to its auditing of now-defunct Texas energy giant Enron.
It was part of the fall from grace for US Bank Tower, eclipsed as the tallest building in the West when downtown’s Wilshire Grand Center hotel-and-office complex opened in 2017.
When the tower, clad in pink Italian granite, was completed in 1989, it was arguably the most prestigious office building in town, an exclusive corporate cathedral designed by architect Henry N. Cobb of Pei Cobb Freed & Partners.
The building then was home to First Interstate Bancorp, a Los Angeles bank that merged with Wells Fargo in 1996, which led to the layoffs of thousands of employees and the bank’s departure from the tower.
In 2015 OUE announced plans for a $50-million makeover intended to broaden its appeal beyond buttoned-down corporate firms and take advantage of its status as home to the city’s highest point.
OUE built an outdoor observation deck, bar and restaurant on the upper floors and added an outdoor glass-enclosed slide to let thrill-seekers whoosh 45 feet from the 70th floor to the 69th, drawing renewed media attention to the building.
The once-imposing lobby was altered to attract passersby with the installation of a video screen 126 feet wide by 17 feet high that displays arty images of California and Los Angeles.
The building has three restaurants, including 71Above on the 71st floor, and will soon be 85% occupied, said real estate broker Tom Bohlinger of JLL, who does not represent OUE. Tenants include US Bank, insurance company Marsh & McLennan Cos. and law firm Lewis Brisbois Bisgaard & Smith, which recently agreed to expand its headquarters there.
It may be an opportune time to sell a downtown skyscraper, Bohlinger said.
Other landlords have acquired buildings in recent years with plans to improve them for resale but have not completed their makeovers as OUE has, he said.
“This has created a little bit of lag in supply” of properties that would appeal to institutional investors, he said, such as pension funds and real estate investment trusts that typically buy high-rises.
Although the commercial real estate market has seen rising values since the last economic recovery began, the potential sale does not indicate the market is peaking before a fall, said Bohlinger, who specializes in office sales.
He hasn’t seen signs of Los Angeles properties being marketed because their owners are concerned about getting out while they can, he said. “I don’t think there is any indication that people think it’s time to take the money and run.”
Although downtown’s office market has long been considered soft, its position is improving with its rapid growth in recent years through the construction of thousands of residential units and the arrival of a new crop of restaurants, bars and stores that are attracting many young people and employers.
“We have a demographic now that loves the urban environment,” he said.
Class A offices downtown were 16.5% vacant last quarter, down from 17.6% vacant a year ago, according to CBRE. Asking rents rose from $3.51 per square foot per month to $3.68.
US Bank Tower is “a crown jewel of downtown,” said real estate executive Nelson Rising, who was in charge of developing the property for original owners Maguire Thomas Partners.
It was originally called Library Tower because it was part of a city-approved project to allow the Los Angeles developer to build two skyscrapers in exchange for a guarantee to fund the renovation and expansion of the fire-damaged Central Library across Fifth Street from the towers. The other building in the project was the Gas Company Tower.