The Los Angeles Housing Department (LAHD) is reportedly considering a move to the Gas Company Tower in downtown Los Angeles, located at 555 West 5th Street, as per a report in the Commercial Observer. The proposed lease agreement would cover 13 floors and encompass a total area of 300,000 square feet. This potential relocation is prompted by the city’s plans to vacate its current offices at 1200 West Seventh Street, which are set to be taken over by LA Care Health Plan. The lease agreement with LAHD holds the potential to revive the Brookfield-owned Gas Company Tower, which encountered financial difficulties and entered receivership in April due to defaulting on $748 million in loans tied to the property and the 777 Tower.
However, it should be noted that the deal has not yet been finalized, and as such, the specifics of the lease and its certainty cannot be confirmed at this time. The brokerage firm Colliers is actively involved in finalizing the lease.
The downtown Los Angeles submarket has been facing challenges in recent months. The transition to remote work during the pandemic has resulted in vacant storefronts, concerns regarding crime, and financial strain on transit systems. Office properties, in particular, have been significantly impacted, with prime buildings experiencing a 25 percent decrease in value over the past year, and the overall office market being nearly 40 percent below pre-pandemic levels.
According to Colliers, nearly all of downtown LA’s top three dozen office buildings currently carry outstanding loan balances that exceed their market value, with an average debt of over $230 per square foot. In contrast, this year’s notable sale, the Union Bank Plaza, was priced at approximately $154 per square foot.
Nonetheless, there are signs of potential improvement on the horizon. In 2020, New York-based Silverstein Properties acquired LA’s US Bank Tower for $430 million and invested an additional $60 million in its renovation. During a ribbon-cutting ceremony in March, Silverstein CEO Marty Burger drew parallels between downtown LA and lower Manhattan after the 9/11 terrorist attacks, highlighting his company’s successful efforts in revitalizing and transforming New York’s Financial District into a thriving live-work community. Burger expressed confidence in downtown LA’s rich history and significant potential.
If the lease agreement at the Gas Company Tower is finalized, it would undoubtedly contribute to the revitalization of a struggling downtown area, bringing renewed vitality to the district.
