Valbridge Property Advisors | Orange County was recently hired to value the Gas Company Tower, a 54-story high-rise office building located in the prestigious Bunker Hill area of downtown Los Angeles. The building, designed by the architectural firm of Skidmore, Owings, and Merrill, was completed in 1991 and contains 1,373,583 square feet of rentable area. The tower boasts a series of setbacks and is topped by a peak of blue glass to symbolize the everlasting blue flame of its primary tenant, the Gas Company. The building’s dramatic shape and rounded lobby entrance were featured in the opening action sequence of the 1994 movie “Speed.”

According to a recent Los Angeles Times article, the Gas Company Tower is currently in escrow for $215 million. In the more favorable market of 2013, the building was purchased for $530 million. However, due to the increase in remote work since the COVID-19 pandemic, many tenants are now downsizing as their leases roll. With higher interest rates and tenant improvement costs at close to $100 per square foot, office values have been tumbling, and appraisers must keep a constant watch on the latest market conditions. Along with in-depth knowledge of commercial property and the local real estate market, this kind of complex valuation requires the appraiser to develop a 10-year cash flow analysis that takes into consideration the existing leases and the lease-up of vacant space. In the case of the Gas Company Tower, Valbridge Property Advisors’ appraisal was the ultimate determinant of the purchase price for the buyer, which is a government entity.

The building is being held in limbo through a deed in lieu of foreclosure, so the seller (lender) can avoid paying a new tax imposed by the City of Los Angeles to help battle homelessness. The new tax rate is 4% on sales of properties valued over $5 million and 5.5% for properties worth over $10 million. The Gas Company property was refinanced in 2020 with a valuation of over $600 million. This financing included a $60 million mezzanine loan, which was completely wiped out in the foreclosure. Needless to say, the mezzanine financer was not happy during the foreclosure process. The first Trust Deed was part of a Wall Street CMBS loan of $450 million. With a sales price in the neighborhood of $215 million, this resulted in a roughly $300 million dollar loss overall.

It would be nice if this transaction signaled the bottom of the office market; however, Brookfield, the building’s owner, is one of the largest landlords in downtown Los Angeles and has three other nearby buildings in the same straits as the subject. There are others as well.

Presented below are a few examples of recent highrise office sales in the Downtown Los Angeles Area:

On July 29, 2024, 777 S. Figueroa Street sold for $120 million. The loan on this property was about $290 million, for a haircut of $170 million.

801 S. Figueroa Street sold on August 5, 2024, for $60 million. The building was purchased for $197 million in 2014.

Aon Center, at 707 Wilshire Boulevard, sold in December 2023 for $148 million. The building was purchased in 2007 for $330 million.

445 S. Figueroa Street sold in March of 2023 for $110 million. This building was purchased for $208 million in 2010.

Investing in real estate takes a keen knowledge of the location, the tenants, the property type, the market and financing. Valbridge offers an honest, unbiased, independent look at your potential purchases or existing assets to determine the best course of action. We spend an inordinate amount of time searching for the most comparable data and performing our analysis. We believe this results in an insightful perspective and accurate values for our clients.