One California Plaza, a prominent 42-story skyscraper in downtown Los Angeles' Bunker Hill district, has entered receivership due to significant financial distress among office landlords. This gleaming tower, a former symbol of prestige since its opening in the 1980s, has experienced a dramatic decline in value, plummeting by 74% from its peak market value. The situation escalated when the property’s owners defaulted on their $300 million debt, scheduled to mature in November, triggering a potential foreclosure. At the request of lenders, a judge appointed Trigild, a specialized receivership service, to take control of the 1 million-square-foot property, as reported by The Real Deal. Current appraised values reveal a stark contrast to the building’s former glory; it’s now valued at $121.2 million, a considerable drop from the $459 million it commanded in 2013. Data from Morningstar Credit and real estate data provider CoStar paint a clear picture of the building’s financial struggles. Specifically, net cash flow at One California Plaza trailed expectations by 37% last year, and the building’s occupancy rate has dwindled to 62% following the departure of key tenants, most notably law firm Skadden, Arps, Slate, Meagher & Flom, which is relocating to Century City. The property’s ownership, held by Los Angeles landlord Rising Realty Partners, has remained silent on the matter, declining to comment publicly. DigitalBridge, a co-owner and Boca Raton, Fla., investment company, also did not respond in a timely manner for publication.

The broader downtown Los Angeles office market has been significantly impacted by shifting trends. The COVID-19 pandemic accelerated the decline as many tenants reduced their office footprints, driven by the rise of remote work. This trend has created substantial challenges for landlords. Furthermore, recent increases in interest rates have exacerbated the situation, making it increasingly difficult for building owners to refinance their debt, leading to accelerated sales or foreclosures. Adding to the concerns, some downtown Los Angeles office tenants have expressed apprehension regarding the perceived safety of the streets, contributing to a shift away from the area and a search for alternative office centers, including those in Century City. The situation extends beyond One California Plaza, with a concerning number of downtown Los Angeles office buildings facing devaluation. Estimates suggest that 54 buildings are currently at immediate risk, potentially leading to a loss of approximately $70 billion in value over the next 10 years, translating to a potential loss of $353 million in property tax revenue.

A recent report by B AE Urban Economics suggests a strategic solution: converting some of these office buildings into residential housing. This repurposing could unlock significant value, with projections indicating that converting just 10 large office buildings to housing would boost their combined assessed property value by $12 billion over a decade. This transformation would generate an additional $46 million in tax revenue and create more than 3,800 residential units. The distress isn't isolated; the Gas Company Tower on Bunker Hill sold for around $200 million last year, down 68% from its $632-million valuation just four years prior, according to CoStar. Similarly, the 777 Tower at 777 S. Figueroa St. was sold for $120 million, representing a 70% drop from its 2013 sale. Even the EY Plaza at 725 S. Figueroa St., once valued at $446 million, is now worth approximately $150 million – a decline of 66%.