Magic Johnson venture to shop LA offices

Real Estate Alert, July 7, 2004

A joint venture that includes Magic Johnson's high-yield fund is marketing two of the three buildings at a Los Angeles complex that it acquired last year. The newly renamed SBC Tower, at 1149 South Hill Street and 1150 South Olive Street, encompasses 950,000 square feet. It could fetch $175 million, or $185/sf--a price that would give the buyer an initial yield of about 7.5%. CB Richard Ellis has the listing.

Meanwhile, the joint venture is about to close on the sale of the complex's third building, at 1149 South Broadway. The City of Los Angeles is buying the 492,000-sf property for about $36 million, or $73/sf, in a deal being completed without a broker.

Given the properties' expected sales prices, the venture's investment is shaping up as a huge success. The former basketball star's vehicle, Canyon Johnson Urban Fund, teamed up with local player New Pacific Realty to buy the complex, then called Transamerica Center, from Aegon in May 2003 for $90 million, or $64/sf.

The joint venture has increased the two buildings' occupancy level to 90% from 50%. Asking rents are $24-$28/sf.

The complex has benefited from the rising tide spurred by planned development in the city's South Park submarket. A $1 billion project, called L.A. Live, envisions a 4 million-sf complex on 28 acres, including a 7,000-sf theater, a 1,200-room convention-center hotel, a second W luxury hotel and 500 residential units. The developer, Anschutz Entertainment, was part of the joint venture that built the adjacent Staples Center in 1999. Elsewhere in the submarket, developers are planning 5,000 for-sale residential units, as well as retail properties.

The 32-story building at 1150 South Olive encompasses 575,000 sf. A unit of SBC Communications recently signed a 10-year lease on 215,000 sf at a reported average rate of $23.28/sf. Transamerica Occidental Life occupies 335,000 sf through 2008.

The 11-story building at 1149 South Hill encompasses 290,000 sf. State Bar of California occupies roughly 200,000 sf through 2014.

The offering includes an 85,000-sf retail pavilion, which is about 70% occupied. Asking rents are $24/sf on a triplenet basis, but are expected to rise once vacant office space at the three-building complex is occupied. SBC is expected to begin taking over its space at the end of this year. Only 40,000 sf is occupied at the building being acquired by the City of Los Angeles. It will start occupying the remaining space next year.

The three buildings are connected by underground passageways. The complex, built from 1965 to 1970, includes two garages, for nearly 3,000 cars. It is less than a mile from Interstate 10 and Highway 110.

For more information, call CB's David Doupe at 310-550-2637.