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CMA
July 31, 2020  

Apollo Financing Buyer of LA Office Trophy

Apollo Global is poised to lend a Silverstein Properties joint venture some $325 million to finance its purchase of U.S. Bank Tower in downtown Los Angeles.

Apollo would originate the debt via an affiliated insurance business, Athene Holdings, whose assets are managed by Apollo subsidiary Athene Asset Management. The floating-rate mortgage, with a total term of five years, is slated to close in the next few weeks in conjunction with the property sale.

Silverstein is teaming up with Migdal Insurance of Israel to buy the 1.4 million-square-foot building from Singapore-based OUE for $425 million to $450 million, or up to $321/sf. Israeli investors often syndicate pieces of their equity interests to others, but it’s not clear if Migdal is doing that in this case.

Apollo would provide about $246 million of the debt upfront, in line with the loan request as previously reported. The balance of the proceeds would be drawn down over time to cover leasing-related expenses.

Eastdil Secured is brokering the property sale for OUE while advising the Silverstein partnership on the financing.

The 72-story building, at 633 West Fifth Street, was about 85% occupied as of late last year. It was developed in the 1980s by Maguire Properties, and OUE acquired it in 2013 from Maguire successor MPG Office of Los Angeles. The purchase price was $367.5 million.

The property was just 50-60% occupied when OUE took ownership. The publicly traded company, which operates several REITs, signed U.S. Bank to a 10-year lease renewal on 105,000 sf of office and retail space. It then spent some $50 million on renovations designed to attract a wide range of tenants.

OUE put U.S. Bank Tower on the block in January 2019 with expectations it would draw bids of up to $700 million, or $500/sf. The fact that OUE ultimately negotiated a sale price at least 35% below the original valuation is an indication of the havoc the coronavirus pandemic has wreaked on the investment-sales market, according to sister publication Real Estate Alert.

After the listing lingered on the market for most of last year, OUE began talks with lenders about refinancing the debt on the property with a new loan of $415 million. But the refinancing never took place, and later the firm put the building back on the market.

The skyscraper will be Silverstein’s first major acquisition on the West Coast. The development shop, led by Larry Silverstein, is best known for rebuilding the World Trade Center complex in Lower Manhattan after the 9/11 terror attacks. But it has looked to branch out beyond New York in the past year or so.

U.S. Bank Tower derives a portion of its revenue from a tourist attraction on the top floors called Skyspace, which includes a restaurant, an observation deck and an exterior glass slide. It has been closed amid the public-health crisis.

The building is the third-tallest structure in the western half of the U.S. and the second-tallest in Los Angeles. The tallest, Wilshire Grand Center, was completed in 2016 by South Korean conglomerate Hanjin.