L.A. County Looks to Buy Distressed Gas Company Tower Ahead of Foreclosure Auction
A deal with the county could complicate the city’s plan to close a massive lease at the former Brookfield office tower
By Greg Cornfield July 25, 2024 5:40 pm
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Officials at the County of Los Angeles are attempting to swoop in and acquire the beleaguered Gas Company Tower, sources told Commercial Observer.
The 1.4 million-square-foot building at 555 West Fifth Street stands more than 50 stories high in the Bunker Hill neighborhood of Downtown Los Angeles. Once deemed a trophy asset, Gas Company Tower has seen its value plummet to below $215 million after previously reaching an estimated $632 million just three years ago.
It was 57 percent leased in May, but the occupancy rate is set to decline as tenants move out in the next couple of years. The tower was put into receivership in April 2023 after a Brookfield (BN)-managed fund defaulted on loans tied to the property and to 777 Tower (which is set to sell to an unidentified investor for $120 million, or about $117 per square foot.).
The Gas Company Tower is set for an Aug. 16 foreclosure auction, and still carries at least $379.8 million in outstanding debt, according to a notice of trustees’ sale.
For its part, the county told CO that officials started looking at the property as they conduct a seismic retrofit efforts.
“Because we are seeing once-in-a-generation price reductions for commercial real estate in the downtown area, as responsible stewards of public funds, the county is doing its due diligence and exploring alternatives to costly seismic retrofitting, including the possibility of acquiring property in the Civic Center area,” the spokesperson said in a statement sent to CO.
One source estimated the county would make an offer ranging from about $200 million to $210 million, which is about $150 per square foot. However, another source estimated the offer would be just $150 million, and others have since contradicted any exact figure.
The deal could complicate the plans of Mayor Karen Bass and the City of L.A., which has been negotiating to lease an incredible 308,000 square feet — nearly a quarter of the building — in a 15-year deal that would bring $375 million in base rent. The mayor’s office did not return a request for comment. Without that lease, the building could soon see its occupancy rate fall to a startling 24 percent.
It’s unclear if the county released a request for proposal, and no public hearings have been held regarding the potential acquisition. JLL (JLL) is marketing the property for sale, and materials shared with CO show the county has also tapped Savills to help with the acquisition.
The potential deal with the county and its exact price would also be particularly significant because JLL signed a deal that includes a “success fee” of 0.5 percent if it trades for between $150 million and $194.99 million, and 0.8 percent if it sells for higher. But JLL’s commission would be reduced if it sells to the city or the county, per the agreement.
One of the mezzanine lenders on the Gas Company Tower, South Korea-based Meritz Investment Management, has also expressed an interest in buying the property, which could further complicate the process. A source familiar with the effort to sell the building said multiple bids have already been submitted.
Gregory Cornfield can be reached at gcornfield@commercialobserver.com.
