LA city returns to negotiating table for Gas Company Tower lease

The City of Los Angeles is, once again, interested in the Gas Company Tower, the 54-story building that Brookfield lost to a receivership earlier this year, after a previous lease deal fell through. 

The city’s Department of General Services has proposed a new lease agreement for five city departments to take up 308,000 square feet at the tower, located at 555 West 5th Street in Downtown Los Angeles, according to City Council documents. 

As part of the 15-year deal, sent to the City Council last week, the city plans to spend $21.7 million on building out the space. The Gas Company Tower, through the receiver, plans to spend $34 million on tenant improvement allowances. 

Brookfield lost control of the tower in April, after the firm defaulted on $748 million in loans tied to both the Gas Company Tower and its 777 Tower, also in Downtown L.A. The commercial mortgage-backed securities bondholders behind the loan filed a lawsuit in April, requesting the court place the property into a receivership. Gregg Williams at Trident Real Estate Group was appointed as the receiver, with the power to negotiate leases, collect rents and even sell the building.

The city has been in negotiations to take up space at the tower for months, though a final deal hasn’t emerged.

According to the City Council documents, a new appraisal of the building caused a “material change in the landlord’s proposed lease terms.” 

Over the summer, the value of the tower was cut to $270 million, a nearly 60 percent reduction from its 2021 valuation of $632 million, according to data from Trepp and Morningstar Credit. 

Under the new proposal, the city will pay $4 per square foot a month, with 3 percent increases every year. That’s incrementally more than the average asking lease rate across Los Angeles County, which was $3.95 in the third quarter, CBRE data shows. 

The lease will cost the city an estimated $14.8 million a year. 

The Community Investment for Families, Economic Workforce Development Department, Housing Department, Youth Development Department and Office of Finance will occupy the space, after the city’s lease at 1200 West 7th Street expires in February. The buildout is expected to be completed by 2024. 

Any lease deal still needs approval by the CMBS bondholders, the receiver and a judge. 

The government departments currently occupy about 228,500 square feet at 1200 West 7th Street, a building owned by Rising Realty Partners. 

“Other location options were considered,” the GSD said in its letter to the City Council. “The GCT building was selected as the best location to meet the city’s space needs for all of the involved departments.”