This story was corrected Oct. 3 to say a venture involving KeyBank has taken over the property in a foreclosure that values the building at $215 million. An earlier version of this story incorrectly indicated the property sold.
A downtown building in Los Angeles known as the Gas Company Tower has been handed back to its lender ahead of a potential sale to Los Angeles county.
The owner handed over the 52-story property at 555 W. Fifth St. to an entity involving special servicer KeyBank in a foreclosure that values the building at $215 million, according to public filings. The property had been in foreclosure proceedings since early 2023, when owner Brookfield Properties defaulted on its loan and gave up the tower.
The county of Los Angeles has been considering an acquisition of the property, according to local reports, and is still "continuing its due diligence” to purchase the site following the foreclosure, a county spokesperson told CoStar News. A public notice from the board of supervisors indicates the county is considering a purchase of the property for no more than $200 million, though the deal has yet to be approved.
CoStar data and public filings showed the transaction price is well below the allocated $522.2 million that Brookfield paid for the tower in October 2013 when it acquired a four-building downtown portfolio from MPG Office Trust for about $1.9 billion.
During the past year, public filings show Brookfield encountered financial challenges with at least four of its downtown Los Angeles towers, joining other landlords in major U.S. cities facing rising vacancies amid declining demand as companies require less office space due to shifting workplace trends.
The pending sale of the Gas Company Tower comes a few weeks after the property's namesake tenant, Southern California Gas Co., inked a deal to move out of the building into a smaller space elsewhere in the city.
CoStar data shows office vacancy in downtown Los Angeles remains historically high at 21.8%, among several factors causing older properties in particular to sell for well below their previous sale prices in recent deals. Prior to the latest sale, downtown Los Angeles posted $115 million in office property deals during the past 12 months, down 74.4% from the previous year.
Distressed deals
Spanning about 1.4 million square feet, the Gas Company Tower was built in 1991 and renovated in 2023, with current tenants that include Deloitte, Starbucks and law firm Latham & Watkins.
Southern California Gas was headquartered there for more than three decades before it signed a lease with CIM Group to fill about 200,000 square feet in the landlord's Two California Plaza office tower at 350 S. Grand Ave, shedding about a third of the utility's presence in the downtown area.
The Gas Company Tower was appraised in 2020 at $632 million but was valued as of early 2024 at closer to $200 million, according to financial services firm Barclays. Court filings tied to the property’s receivership indicated it could potentially sell for between $150 million and $220 million or higher.
“Given the current market weakness, we will likely see additional distressed sales in the coming years,” said Ryan Patap, senior director of market analytics for CoStar Group in Los Angeles, regarding the Gas Company Tower sale. “The cost bases for many properties are too high for some landlords to execute deals. As more properties go into default, more transactions will surface.”
According to regional media reports, the city of Los Angeles had previously eyed leasing space at the tower, and the county of Los Angeles was in discussions as of August to purchase the building outright for the same $215 million price listed in the latest transaction.
“The government is likely to be the prime source of demand for the major towers in downtown Los Angeles going forward,” Patap said. “They have an opportunity to upgrade their space, taking advantage of the market’s weakness. While this could help buildings in the Financial District and Bunker Hill, it could also create major vacancies in properties around the Civic Center.”