📢 Colliers is marketing the $275M non-performing loan on EY Plaza after a failed $130M sale. Bids are expected at steep discounts, crystallizing the new pricing reality for downtown trophy towers.
Loan balance: $275M
Failed sale price: $130M (~$141/sf) vs. ~$300M pre-pandemic value
Implied value decline: ~60% from peak
LA office vacancy: >30% (all-time high)
National office CMBS delinquency: 11.7% in Aug 2025 (record)
Loan Performance
EY Plaza epitomizes systemic office loan distress. With cash flow insufficient to cover debt service, lenders opted for a note sale rather than foreclosure. Note buyers will underwrite yields in the mid-teens, treating debt as de facto equity. If the note clears below half of par, it will set a new comp for loss severity in urban trophy towers, pressuring appraisals and lender balance sheets nationwide.
Demand Dynamics
Tenant downsizing drives the collapse. Downtown LA occupancy exceeds 30% vacancy, with effective rents 15–20% below pre-pandemic. Even Class A assets with retail adjacencies face thin demand. The “flight to quality” narrative is breaking: large tenants are still shrinking, leaving trophy buildings unable to rely on prestige alone. This structural demand reset suggests absorption timelines of 3–5+ years for large blocks.
Asset Strategies
Operators must pivot from rent growth to tenant capture. TI packages of $100–150/sf and extended free rent are now baseline. Owners weigh costly upgrades versus conversions, though many towers face structural or zoning barriers. Adaptive reuse is discussed, but without feasibility, underwriting must assume continued office use. Those pursuing note acquisitions must plan for both protracted lease-up and high capital expenditures before stabilization.
Capital Markets
Traditional lenders have retreated. Distress funds and high-yield buyers dominate bidding, requiring double-digit yields. Each distressed sale sets new market clearing prices, repricing loan books and triggering write-downs across CMBS and bank portfolios. A $0.50-on-the-dollar trade at EY Plaza will ripple across valuations in LA, San Francisco, Chicago, and NYC. Until pricing finds equilibrium, liquidity remains selective—cash-rich investors dictate terms.
📉 Downtown trophy towers can trade at 60%+ discounts.
🏢 Even Class A assets suffer when tenant demand collapses.
💸 Debt buyers are the new equity, seeking mid-teens yields.
🔄 Each sale resets national office pricing benchmarks.
🛠 Operator’s Lens
Landlords must compete aggressively: free parking, custom build-outs, and concessions are survival tools.
Maintain amenities despite weak cash flow—tenant choice hinges on building quality.
Leasing teams should track every tenant expansion prospect; even small deals are critical.
Consider early talks with city officials on conversion incentives, but model as office-first.
Expect a wave of distressed note and asset sales through 2026 as loans mature into frozen refinancing markets. Trophy towers in San Francisco, Chicago, and NYC may follow LA in repricing 50–70% below peak. Cities will accelerate zoning and subsidy programs to promote conversions, but absorption will take years.
Near term, refinancing remains nearly impossible for under-occupied towers, forcing more lenders to offload debt. Long term, selective investors who acquire at distressed basis and execute creative repositioning could secure strong returns in a leaner, smaller office sector by 2030.
CoStar, Commercial Observer, Trepp, Scotsman Guide
Chart 1 – CMBS Delinquency by Property Type (Aug 2025)
Chart 2 – Ernst & Young Plaza Value Collapse
Chart 3 – Downtown LA Vacancy (2015–2025)
