Big Gas Company Tower Lease With City of L.A. Is Back On
15-year deal for nearly 310,000 square feet starts at over $1.2 million a month, or $14.8 million a year
By Greg Cornfield February 5, 2024 11:55 am
reprints
The on-again off-again relationship between the City of Los Angeles and the distressed Gas Company Tower is playing out like a 2000s sitcom.
A deal to put five city departments into nearly 310,000 square feet of office space at the 52-story building in Downtown L.A. is back on with a significant tenant improvements plan, according to city files. The 15-year lease comes with two five-year options to extend, as well as expansion rights on the fifth and 10th anniversaries of the commencement date at one full floor for each option.
The lease rate for the first year is $4 per square foot per month, with 3 percent annual increases. Monthly rent is estimated at over $1.2 million, or more than $14.8 million per year.
The lease will commence on Dec. 18, 2024, after the tenant improvements are finished. The budget for those — including moving expenses — is $210 per usable square foot, totaling $55.3 million. The landlord will provide about $34 million of that. The city’s portion of TI costs will total approximately $21.4 million. To offset the city’s portion of tenant improvements, the landlord has agreed to provide L.A. rent abatement in future years totaling $19.8 million, according to city documents.
Further, free temporary office space will be made immediately available to the city as soon as the lease is executed. That includes 153,416 square feet of office swing space and 41,000 square feet of storage. An additional 54,284 square feet of office swing space will be available for use by April.
The expansion lease will be a windfall for the Gas Company Tower at 555 West Fifth Street, which will house more than 1,200 employees from five city departments: Community Investment for Families, the Economic Workforce Development Department, the Housing Department, the Youth Development Department and the Office of Finance. Those employees are vacating their current offices at 1200 West Seventh Street as that 228,539-square-foot lease expires Feb. 29.
The lease was set last summer, but fell apart at the last minute when the tower’s bondholders rejected the terms.
“Due to the continued deterioration of the market, on July 10, 2023, prior to execution of the lease, a significant appraisal reduction occurred for the building, resulting in a material change in the landlord’s proposed lease terms for the city in early September,” according to the city. Indeed, the value of the tower fell by 57 percent in just two years — from $632 million in 2021 to $270 million.
L.A.’s Department of General Services explored other options downtown after the rejection, but again went back to Gas Company Tower.
The 1.4 million-square-foot Gas Company Tower went into receivership in April 2023 after a Brookfield (BN)-managed fund defaulted on $748 million in loans tied to the property and to 777 Tower. Trident Real Estate Group’s Gregg Williams was appointed as receiver for the building at the behest of lenders Citi Real Estate Funding and Morgan Stanley.
A large lease with the city brings significant relief considering law firm Sidley Austin, which is the second-largest tenant at the Gas Company Tower, will soon be vacating after its lease expires in 2026.
Less than 2.2 million square feet of office leasing was recorded in L.A. in the fourth quarter, down 28 percent from the third quarter and 26 percent from the same period in 2022, according to Savills’ most recent market report. Leasing activity for 2023 hit about 10.5 million square feet, which is down 15 percent from 2022 and down 42 percent from the 18 million square feet recorded in 2019 before the pandemic.
Commercial Observer first reported the city’s lease at the Gas Company Tower in June 2023.
Gregory Cornfield can be reached at gcornfield@commercialobserver.com.
