L.A. County to Offer $215M for Gas Company Tower
Sources: Administrators plan to pay in cash
By Greg Cornfield August 1, 2024 11:05 am
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The County of Los Angeles plans to offer $215 million in an all-cash deal for the distressed Gas Company Tower, sources told Commercial Observer.
This comes a week after CO first reported the county’s intentions to acquire what is the fifth-tallest tower in the city at 555 West Fifth Street, which was once part of Brookfield (BN)’s portfolio of trophy office space in Downtown L.A., but has since seen steep declines in value and overwhelming financial distress. A sale at $215 million, or about $153 per square foot, would be far below its estimated value of $632 million just three years ago, while still carrying at least $379.8 million in outstanding debt.
“The county has not committed to buying the Gas Company Tower, which could only be done by action of the Board of Supervisors, but has submitted a nonbinding letter of interest for the property as part of its exploration of alternatives to costly seismic retrofitting for its downtown properties,” the county said in a statement sent to CO. “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 evaluating the possibility of acquiring property in the Civic Center area, such as the Gas Company Tower.”
A county spokesperson did not address questions about the value tied to the letter of interest or comment further regarding the process of the acquisition. Sources told CO a deal with the county is notably exempt from Measure ULA, a controversial city tax on pricier commercial property deals that since 2023 led to a measurable decline in investment sales.
Further, a potential deal with the county would also be particularly significant because marketing brokerage JLL (JLL) signed a deal that includes a “success fee” that increases to 0.8 percent if the tower sells for over $220 million. But JLL’s commission would be reduced if it sells to the city or the county, per the agreement, according to previous reporting by The Real Deal.
JLL did not return requests for comment. Savills, which has been hired by the county for the acquisition, also did not return requests for comment.
It’s also unclear how a sale to the county will affect the city’s plans to lease 308,000 square feet in a 15-year deal at the Gas Company Tower that would bring $375 million in base rent. Mayor Karen Bass’s office did not return requests for comment. Without that lease, the building could soon see its occupancy rate fall to a startling 24 percent.
Gregory Cornfield can be reached at gcornfield@commercialobserver.com.
