Los Angeles office skyscraper faces foreclosure sale

Gas Company Tower, a prominent office skyscraper in downtown Los Angeles, faces foreclosure as landlords continue to struggle to keep tenants in their buildings.

A notice of trustee’s sale for the high-rise on Bunker Hill was filed March 21 with the Los Angeles County Registrar-Recorder/County Clerk, setting the stage for a foreclosure sale as soon as 90 days after the filing.

The sale may complicate plans by the city of Los Angeles to lease more than 300,000 square feet in the building. The city has been negotiating with the receiver in control of the property for months to sign what would be one of the region’s largest office leases of the year if it is approved by the City Council.

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The Gas Company Tower at 555 W. 5th St.

(Myung J. Chun / Los Angeles Times)

The foreclosure comes as the value of office buildings has plunged amid higher vacancies. Elevated interest rates have also weighed on prices and made it difficult for building owners to refinance debt.

The 52-story Gas Company Tower at 555 W. 5th St. was widely considered one of the city’s most prestigious office buildings when it was completed in 1991. In recent years the office market has turned against landlords as many tenants reduced their office footprint in the wake of the COVID-19 pandemic, when it became more common for employees to work remotely.

Downtown’s financial district was particularly hard hit as some companies chose to move their offices to other markets such as Century City as perceptions of safety downtown grew more negative.

Last year, the owner of the Gas Company Tower, an affiliate of Brookfield Asset Management Ltd., defaulted on its debt. The building has roughly $465 million in loans, including $350 million in commercial mortgage-backed securities and two mezzanine mortgages for $65 million and $50 million.

The price for office space in downtown Los Angeles is averaging about $141 a square foot, according to a note Wednesday released by Barclays.

A nearby Brookfield tower at 777 S. Figueroa St. is being sold for about $145 million, roughly 50% less than the outstanding debt on the property.

The Gas Company Tower was appraised in 2020 at $632 million but is now worth closer to $200 million, based on the $141-per-square-foot price cited by Barclays.

Even at that reduced value, it may be a challenge to find buyers, real estate analyst Michael Soto said.

“The buyer pool is going to be much smaller than people might think because there’s so much uncertainty about the office property sector as well as downtown L.A.,” said Soto, a director of research for real estate brokerage Savills.

With most institutional investors on the sidelines in the current market, potential buyers may come from overseas — for instance, South Korean firm Concus Asset Management, which bought 777 S. Figueroa — or from the ranks of private investors who can pay cash, Soto said.

“The one thing they all have in common is that they have a long-term investment horizon,” he said. “They’re not looking to exit in the next five years or so” and take profits.

Brookfield did not immediately respond to a request for comment.

Bloomberg contributed to this report.