Los Angeles County has tentatively agreed to buy the Gas Company Tower, a prominent office skyscraper in downtown Los Angeles, for $215 million in a foreclosure sale.
The price represents a steep reduction from its 2020 appraised value of $632 million, underscoring how much the value of downtown office space has fallen in recent years.
The Board of Supervisors still must approve the deal, which county real estate officials negotiated quietly but aggressively. If completed, the purchase could move workers and utilities out of existing county offices, including the landmark Kenneth Hahn Hall of Administration, which dates to 1960, according to several people familiar with the transaction who asked not be named in order to discuss confidential negotiations.
The county has begun the due diligence process of examining the property for possible structural or other issues before finalizing the transaction, which could take two to three months, the sources said.
In a statement to the Times, the county said it had submitted a non-binding “letter of interest” for the tower.
“Because we are seeing once-in-a-generation price reductions for commercial real estate in the downtown area, as a responsible steward of public funds, the County is conducting due diligence and evaluating the feasibility of acquiring property in the civic center area. like the Gas Company Tower,” the statement said.
Supervisor Janice Hahn, who is the daughter of longtime Supervisor Kenneth Hahn, said in a separate statement to the Times that she was not entirely on board with the acquisition.
“I’m not comfortable with the county buying this skyscraper until I understand the CEO’s full plan which I haven’t seen yet. I am definitely against moving county services from the only civic center in Los Angeles,” she said.
The Gas Company Tower represents “a generational investment opportunity to acquire a trophy asset at an exceptional title,” Andrew Harper, a broker with real estate firm JLL, said in May when JLL was hired to market the property. JLL declined to comment Tuesday on the pending sale.
The 52-story tower at 555 W. 5th St. was widely considered one of the city’s most prestigious office buildings when it was completed in 1991. It has approximately 1.4 million square feet of space. space on a 1.4 acre site at the foot of the Bunker. Hill.
In recent years, the downtown office market has turned against landlords as many tenants reduced their office footprints in response to the COVID-19 pandemic, when it became more common to employees to work remotely.
Last year, the owner of Gas Company Tower, a subsidiary of Brookfield Asset Management Ltd., defaulted on its debt and the property went into receivership, under which a court-appointed representative took custody of the building to help creditors recover the funds they had received. loaned to Brookfield. The building has about $465 million in outstanding loans.
High interest rates have weighed on prices by making it difficult for property owners to refinance debt and pushing them into quick sales or foreclosures. Some downtown Los Angeles office tenants have expressed concern in recent years that the streets appear less safe than before the pandemic and have left for other local office hubs, including Century City.
The Gas Company Tower was renovated in 2023 and the tower is currently more than half leased to tenants including Southern California Gas Co., financial consulting firm Deloitte and law firm Latham & Watkins, according to real estate data provider CoStar.
The office vacancy rate in downtown Los Angeles was above 30% in the second quarter, the real estate broker CBRE declaredwhich is more than three times the level generally considered to be a healthy balance between the interests of tenants and landlords.
The decline in downtown office values is drawing attention from buyers looking to snap up property at a low point in the market, said Petra Durnin, head of market analysis at Raise Commercial Real Estate , which is not involved in the transaction.
“Unfortunate situations can create opportunities for other people through money,” Durnin said. “Downtown has been through boom and bust cycles before and has always reinvented itself.”
A nearby 52-story office tower, formerly owned by Brookfield, at 777 S. Figueroa St., is expected to sell for a significantly reduced price of $120 million, or $117 per square foot, according to the A trade observer reported. It almost sold for around $145 million a few months ago, but the deal fell through.
In its statement to the Times, the county said it was considering the Gas Company tower as an alternative to seismic retrofitting of its downtown properties. The county has 33 facilities that engineers say are likely to collapse in a major earthquake, including the Kenneth Hahn Hall of Administration, which has been the seat of Los Angeles County government for six decades and houses the offices of hundreds of employees and the five county supervisors.
Last year, the county promised to upgrade the 33 vulnerable buildings over the decade, an ambitious project that experts say would cost hundreds of millions of dollars.
