DWP’s “incestuous” $41M DTLA lease passes hurdle, despite criticism

A Los Angeles City Council subcommittee gave the stamp of approval to a $40.8 million lease agreement with the Department of Water and Power last week, despite criticism that it overcharges ratepayers. The approval leaves the controversial lease with just one committee hurdle to clear.

The council’s Entertainment and Facilities committee OK’d the 10-year agreement, which was approved by the utility’s board last month. Under the terms, DWP will lease four floors in the north tower of the city-owned Figueroa Plaza, paying a rate of $48.47 per square foot for 82,900 square feet of office space and 207 parking spaces.

Christina Noonan, a 20-year real estate veteran and a DWP board commissioner, continued to voice her opposition to the lease at the Entertainment and Facilities meeting. Noonan, who described herself as “disillusioned and disheartened” following the committee’s decision, has decried DWP’s decision to forgo a broker, negotiate directly with the city, and rush the opinion of an unvetted appraiser.

In comments submitted to the board on Wednesday, the JLL broker said the lease was “unfavorable” and contains provisions “unheard of in Los Angeles’ real estate market,” including architectural fees, furniture costs, and other items related to tenant improvements.

“The contract appears incestuous and lacks … transparency and correctness, which our citizens deserve,” she said.

Noonan, the sole dissenting vote on a DWP board resolution approving the lease on October 4, had previously slammed the findings of Peregrine Realty Partners principal Bradley Lofgren, who was hired to appraise the property. She argued that Lofgren’s report used inaccurate comps. In his findings, Lofgren compared the property — purchased by the city for $219 million in 2007 and badly damaged by a fire at neighboring property in December 2011 — to the U.S. Bank Tower, the Bloc and 800 Wilshire, which Noonan said are “much more prestigious and desirable office buildings.”

Negotiated between the city and a department that relies on revenue from ratepayers, the lease has also come under fire from outside sources — including Jack Humphreville, president of unaffiliated watchdog group the DWP Advocacy Committee. He has argued public officials were using it as a means of plugging the city’s impending budget deficit.

Bernice Hollins, a municipal analyst with the Office of the Chief Administrative Officer, spoke to some of those claims at Wednesday’s meeting, arguing that the city had negotiated the “best deal” it could for both the general fund and constituents.

“When we negotiated this deal, we needed to make sure that we offered one that the DWP board could accept,” Hollins said. “I don’t have to tell this committee that when we’re talking about council constituents, they are the same as DWP ratepayers. So, when we say we negotiated the best deal, we really are talking about the public good, and we’re talking about both sides of our street.”

Hollins said DWP will pay the city a one-time payment to cover partial costs of already-completed tenant improves in the space. Any excess revenue will be directed back to the property, benefitting “council-controlled” departments.

DWP General Manager David Wright has said that the department needs the space to hire staff to begin enacting portions of the already-approved rate plan, including updating outdated financial IT and hiring renewable power engineering. Wright also stressed at last week’s meeting that the department is facing a personnel crunch: More than 3,000 of its 9,200 employees are eligible for retirement, and succession planning sometimes requires double staffing positions for one or two years.

DWP is unable to hit those numbers in its headquarters at the John Ferraro Building at 111 North Hope Street, he said. Not counting new staff, Wright said he has 700 outstanding employee requests for space he is unable to meet. The Fig Plaza space would house about 400 employees and provide the additional benefit of proximity to the department’s current home, reducing employee-travel time and the need for additional fleet vehicles, he said.

“We’re halfway through our rate plan without having space for the additional staff to implement everything we promised,” he said at the meeting.

In moving to approve the lease, Entertainment and Facilities Committee Chair Mitch O’Farrell, a councilmember who represents L.A.’s 13th district, rejected DWP ratepayer advocate Fred Pickel’s request for a most-favored-nation clause after assurances from Wright that such provisions had been considered in closed sessions. While allowing Noonan’s prepared remarks to enter into the public record, O’Farrell said that he saw no reason to oppose the lease and that the city and DWP stood to suffer by delaying the process further.

“I think this [lease] has been exquisitely negotiated,” he said at the meeting.

The agreement will next appear before the Energy and Environment subcommittee.