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LA WATCHDOG - Brookfield DTLA has written down the value of its 45-story office tower at 355 South Grand Avenue (the South Tower of the Wells Fargo Center) to $311 million. This compares to an assessed value of $480 million. This loss of $169 million in the assessed value will cause the City to lose an estimated $420,000 in property tax revenue.
Underlying the loss in value are the uncertain economy, higher vacancy rates caused by the exodus of businesses from downtown and more employees working from home, higher interest rates, tighter credit markets, and the impact of Measure ULA that imposes a 5.5% transfer tax on all property sales of more than $10 million.
It appears that Brookfield DTLA is in a world of hurt. Earlier this year, the company defaulted on loans of $784 million associated with its properties located at 777 South Figueroa and 525 West Fifth Street (the Gas Company Tower). The Company is also in the process of delisting its shares from the New York Stock Exchange because of its low valuation of its stock and the enterprise’s uncertain prospects.
Brookfield DTLA’s portfolio consists of six office towers and one small retail center, all located in the City’s Central Business District, consisting of 7.6 million square feet of rentable space. The properties are carried on the books at almost $3 billion before accounting for depreciation.
If the assessed values of these properties are lowered by 20% (compared to the 35% for the South Tower of the Wells Fargo Center), or $600 million for tax purposes, the City would lose $1.5 million in property tax revenues.
The loss in value is not confined to Brookfield DTLA’s portfolio. More than likely, it will apply to the City’s other commercial and industrial properties that have an assessed value of over $200 billion. Even a minor hit to the assessed value of these properties will cause the City to lose tens of millions in property tax revenue.
The Mayor and the City Administrative Officer City would be wise to use a conservative growth rate in determining the property tax revenues for its upcoming 2023-24 budget that is due to be submitted to the City Council on April 20.
(Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee, the Budget and DWP representative for the Greater Wilshire Neighborhood Council, and a Neighborhood Council Budget Advocate. He can be reached at: [email protected].)
