In a transaction reflecting the challenges faced by the office market in Downtown Los Angeles, a 12-story office tower has been acquired at a significant discount, with the new owner potentially eyeing a conversion to residential or hotel use.

The Swig Company, a San Francisco-based real estate firm, has sold the 216,000-square-foot property located at 617 West 7th Street to Izek Shomof, the founder and CEO of The Shomof Group, for $20.5 million. This marks a substantial 47% discount from the $38.8 million that Swig paid to acquire the property in late 2011, according to reports citing L.A. County property records.

The sale price represents “the lowest price paid per square foot for any office tower in Downtown L.A. since the COVID-19 pandemic began four years ago,” as reported by The Real Deal.

Prior to the sale, JLL had been marketing the property, highlighting its eligibility for residential or hotel conversion, according to the publication’s sources. Shomof has experience in such conversion projects, having purchased an abandoned 14-story office tower in Panorama City in 2015 for $12.5 million and reopening it five years later with nearly 200 units.

The steep discount reflects the challenging office market conditions in Downtown Los Angeles, where the total office availability rate has risen to over 27% in the first quarter of 2023, according to a quarterly market report cited. The availability rate in Downtown L.A. was close to 30% after the first three months of the year.

While the parties involved did not immediately respond to requests for comment, the sale of the former Union Oil headquarters at a significant discount underscores the potential for office-to-residential or hotel conversions as a strategy to repurpose aging office buildings in the current market environment.