The county of Los Angeles 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 is a deep discount from its appraised value of $632 million in 2020, underscoring how much downtown office values have fallen in recent years.
The Board of Supervisors must still approve the deal, which county real estate officials quietly but aggressively negotiated. If completed, the purchase could move workers and public services out of existing county offices, including the well-known Kenneth Hahn Hall of Administration, which dates to 1960, according to multiple people familiar with the transaction who requested they not be named in order to discuss the confidential negotiations.
The county has begun the due diligence process of examining the property for possible structural problems or other issues before finalizing the transaction, which could take two to three months to complete, the sources said.
In a statement to The Times, the county said that it had submitted a nonbinding “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 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,” 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 is not fully on board with the acquisition.
“I am uncomfortable with the County moving forward purchasing this skyscraper until I understand the CEO’s full plan which I have yet to see. I am definitely against moving County services away from Los Angeles’ only Civic Center,” she said.
The Gas Company Tower represents “a generational investment opportunity to acquire a trophy asset at an exceptional basis,” Andrew Harper, a broker with the 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 about 1.4 million square feet of space on a 1.4-acre site at the base of Bunker Hill.
In recent years the downtown office market has turned against landlords as many tenants reduced their office footprint in response to the COVID-19 pandemic, when it became more common for employees to work remotely.
Last year, the owner of the Gas Company Tower, an affiliate of Brookfield Asset Management Ltd., defaulted on its debt and the property was put in receivership, in which a court-appointed representative took custody of the building to help creditors recover funds they lent to Brookfield. The building has roughly $465 million in outstanding loans.
Elevated interest rates have weighed on prices by making it difficult for building owners to refinance debt and pushing them into quick sales or foreclosures. Some downtown L.A. office tenants have expressed concern in recent years that the streets feel less safe than they did before the pandemic and have left for other local office centers including Century City.
The Gas Company Tower was renovated in 2023 and the tower currently is 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.
Office vacancy in downtown Los Angeles was more than 30% in the second quarter, real estate brokerage CBRE said, more than triple the level typically considered to be a healthy balance between tenant and landlord interests.
Falling office values downtown are catching the attention of buyers seeking to grab property at a low point in the market, said Petra Durnin, head of market analytics at at Raise Commercial Real Estate who is not involved in the deal.
“Unfortunate situations can create opportunities for others with the cash,” Durnin said. “Downtown has been through boom and bust cycles before and always reinvented itself.”
A nearby 52-story office tower formerly owned by Brookfield at 777 S. Figueroa St. is set to be sold at the significantly discounted price of $120 million, or $117 a square foot, the Commercial Observer reported. It came close to selling for about $145 million a few months ago but the deal fell apart.
In its statement to The Times, the county said it was eyeing the Gas Company Tower as an alternative to seismically retrofitting its downtown properties. The county owns 33 facilities that engineers say are vulnerable to collapse during a major earthquake, including the Kenneth Hahn Hall of Administration, which has been the headquarters of Los Angeles County government for six decades, home to the offices of hundreds of employees and the five county supervisors.
Last year, the county pledged to upgrade all 33 vulnerable buildings within the decade, an ambitious undertaking that experts say would cost hundreds of millions of dollars.
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