L.A. County Approves $200M Deal for Distressed Skyscraper

Los Angeles County officials have approved a plan to pay $200 million for the beleaguered 54-story Gas Company Tower in Downtown L.A. and move its operations there from the Civic Center.

The County Board of Supervisors voted 4-1 this week to greenlight a plan to acquire the skyscraper at 555 West Fifth Street, along with airspace parcels at the World Trade Center at 350 South  Figueroa Street and 333 South Flower Street. The plan aims to reduce costs by taking advantage of an office real estate market that’s suffering an unprecedented decline in property values.

“The CEO’s analysis determined acquisition of existing Class A office space in Downtown Los Angeles at historic low market prices is financially prudent, as it allows the county to take advantage of this exceptional opportunity to purchase a top-quality office building at a below-market rate,” a staff report for the Board of Supervisors read.

The county is also shrinking its overall footprint by moving county departments from leased space at “aging buildings in poor condition” at Kenneth Hahn Hall of Administration at the Civic Center to the Gas Company Tower, according to the staff report. The county government currently occupies 16.5 million square feet of office space, including 6.9 million square feet of leased space that costs approximately $195 million per year. 

But 40 percent of all county-owned space is in very poor or poor condition, and 48 percent of it is at least 50 years old. The older buildings “need significant investment” to extend their useful lives, including seismic retrofits, life safety improvements, building system replacements, and other renovations.

“Acquiring the Gas Company Tower … will save the county hundreds of millions of dollars, upwards to $1 billion, than what it would cost to complete the seismic renovations and life safety upgrades and deferred maintenance on the Hall of Administration and other area buildings — fundings that we have not yet identified or allocated to any fund,” L.A. County CEO Fesia Davenport said. “This seismic work, even if we started today, would not be complete until 2030. The Gas Company Tower will provide us a Class A building built about 30 years ago that meets more modern code requirements for seismic, life safety, and is asbestos free.”

The Gas Company Tower last sold for more than $530 million about 11 years ago. It was appraised at $632 million in 2020, but Brookfield (BN), its previous owner, defaulted on its loan obligations and the tower went into receivership in April 2023. The principal creditor foreclosed on the tower and acquired it at a trustee’s sale in September.

Because the buyer is a government entity, the newest deal is notably exempt from the city’s controversial Measure ULA tax, which would have levied an additional 5.5 percent toll on the transaction. Also, the Gas Company Tower will be removed from the property tax roll after the county acquires it.

To pay for the newest acquisition, the county is pulling money earmarked to renovate and seismically retrofit the Hall of Administration, along with other funds. The county then plans to refinance the property in February of 2025 to return the money to its accounts for provisional financing uses. Additional funds could be generated if the county completes a seismic retrofit and other improvements to the Gas Company Tower and then sells it when the market recovers.

Davenport said the plan does not call for the county to abandon the Hall of Administration or the Civic Center around Grand Park. But Supervisor Janice Hahn (daughter of Kenneth Hahn, a longtime county supervisor and the namesake of the existing Hall of Administration) cast the only dissenting “hell no” vote, and argued that it sets the stage for the abandonment of the Hall of Administration.

“None of you here are going to convince me that this is a good idea and I know my remarks are not going to change anybody’s opinion,” Hahn said. “We also must go into this open-eyed that a yes vote will be the start of a ripple effect that we may not be able to undo.

“I’m not sure the public knows this, and I’m not sure the people that work in this building know this because most of this has been done behind closed doors. … In all my years, this is one of the most closed-door, off-the-record plans to come to fruition that I have witnessed.”

Hahn also said the county doesn’t have a plan to replenish all the money taken from other accounts to finance the acquisition.

“The money being used to pay for this purchase is being stolen from the funds that were meant to keep this building alive,” she said. “We are robbing Peter to pay Paul, and I am sorry that this is happening.” 

Hahn also opposes moving the public government process from the Civic Center — where it’s surrounded by other public buildings and government facilities — about a half-mile south to a “soulless skyscraper” that’s surrounded by other office towers.

“I don’t think that’s what government should look like,” she said.

The Gas Company Tower was 57 percent leased earlier this year, but the occupancy rate is set to decline as more tenants move out in the next couple of years. In the third quarter this year, the Southern California Gas Company signed a deal to leave its longtime home at the Gas Company Tower for a smaller space at a tower nearby. It follows other major tenants like Sidley Austin and WeWork that have left or plan to vacate big chunks at the Gas Company Tower.

Gregory Cornfield can be reached at gcornfield@commercialobserver.com.