One of the biggest office buildings in Long Beach, One World Trade Center, has sold at a steep discount to Orange County developers who plan to renovate the oceanfront high-rise and seek additional tenants for it.
Greenlaw Partners, which specializes in turning around troubled properties, bought the 27-story tower on Ocean Boulevard for about $105 million, far less than its last owners paid for it during the last real estate boom. The structure is little more than half occupied even though real estate experts widely consider it one of the best office buildings in the city.
"The view is mesmerizing," said Wil Smith, founder of Greenlaw.
However, the granite-clad building, completed in 1989, has lots of deferred maintenance. "We're going to make some of the changes a 25-year-old building needs," he said.
Included in the $15-million makeover will be aesthetic improvements to the property's outdoor courtyard and two-story retail plaza that connects to the adjacent Hilton Long Beach hotel. Owners of the hotel are independently conducting a multimillion-dollar renovation of their property, Smith said.
The previous owners of One World Trade Center, SteelWave Inc., paid nearly $150 million for the 575,000-square-foot property in 2007, when commercial real estate values were peaking. The Foster City, Calif., real estate investment firm was then known as Legacy Partners.
The Long Beach Board of Harbor Commissioners agreed to buy the building for $130 million in 2011, but the transaction was never completed. Port officials planned to occupy part of the offices in the building and rent out the rest of the space.
Contributing to the low purchase price was Long Beach's office market, which has been weak for decades and hasn't experienced much improvement despite the regional office market recovery. Downtown Long Beach vacancy was 19.3% last quarter, about the same as it was in the same period a year ago, according to real estate brokerage Cushman & Wakefield. A market with 10% vacancy is considered balanced.
Office landlords hope vacancy will diminish as the kind of urban revival that is going on in downtown Los Angeles and other cities finally spreads into Long Beach, said real estate broker Kevin Shannon of CBRE Group Inc., who helped arrange the sale of One World Trade Center.
"Long Beach is a microcosm of downtown L.A., with more residential, retail and hospitality coming in," Shannon said. "Millennials want to live in more urban environments."
Some Long Beach office landlords are expected to convert their buildings to apartments or condominiums, he said, which would reduce competition in the office market.
The purchase price of One World Trade Center should allow Greenlaw to keep its rents low enough to attract business owners who want to move to a better building but haven't been able to afford it, Shannon said.
"They can attract tenants from lower-quality office product by offering them trophy Class A space," he said.
Average rents at One World Trade Center are about $2.50 per square foot per month, according to real estate data provider CoStar. At the prominent 100 Wilshire office tower in Santa Monica, which also has ocean views, rents average more than twice that at roughly $5.80 a square foot.
Smith said his company is betting that the appeal of Long Beach will grow in the years ahead given its coastal locale.
Tenants in One World Trade Center include law firm Ford, Walker, Haggerty & Behar, investment firm Morgan Stanley and the federal Food and Drug Administration.
The building's acquisition brings the size of Greenlaw's office portfolio up to about 6 million square feet, Smith said.