Downtown L.A.’s KPMG Tower will soon have a new name.
Accounting firm KPMG LLP will move from the building this year, leaving the eight floors it occupies at the 45-story office skyscraper that bears its name.
KPMG, with 934 accounting professionals, is the fourth-largest accounting practice in Los Angeles County. Its downtown office, at 176,000 square feet, is its largest in the market.
Sources told the Business Journal that
the firm, a unit of KPMG International Cooperative in the Netherlands, has signed a letter of intent with landlord LBA Realty LLC to move to 550 S. Hope St. in the Historic Core neighborhood closer to L.A. Live and other attractions. That deal is expected to close later this year.
The anticipated move would take the firm from its longtime home at the KPMG Tower, 355 S. Grand Ave., owned by MPG Office Trust Inc.
David Weinstein, chief executive of MPG, said that KPMG would be downsizing and moving out of its Bunker Hill location during an earnings conference call last week.
“We tried aggressively to keep them in the building and were unsuccessful,” he said on the call. MPG did not announce any plans for replacing the tenant or renaming the building.
It’s not clear just how much KPMG will downsize. Sources told the Business Journal the company might take between 75,000 and 110,000 square feet at its new home, a 20 percent to 38 percent decrease.
The lease would be a win for Irvine’s LBA, which bought the Hope building, once part of the vast MPG portfolio, in 2011 for $158 million after the real estate investment trust defaulted on its loan. The lease would backfill a significant amount of the 110,000 square feet vacated by law firm Howrey LLP when it collapsed in 2011.
The loss of the large occupant is another setback for MPG, which has seen a number of its tenants move out or downsize as it struggles with $1.9 billion in debt and the possible sale of its portfolio.
The move is a blow to the Bunker Hill neighborhood, too, coming on the heels of accounting firm PricewaterhouseCoopers LLP’s announcement that it would move its 135,000-square-foot requirement to the Historic Core’s 601 Figueroa St. from Bunker Hill’s 350 S. Grand. Other large professional Bunker Hill tenants, including law firm Morrison Foerster LLP, have significantly reduced the space they occupy in downtown offices in the last year.
Vacancies grow
KPMG Tower now joins U.S. Bank Tower and Gas Co. Tower – both owned by MPG – and 2 California Plaza and 444 S. Flower St. among the Bunker Hill buildings with more than 25 percent vacancy.
Josh Wrobel, managing director in the downtown office at Jones Lang LaSalle Inc., said KPMG’s move continues a trend by downtown professional firms moving further south toward South Park and L.A. Live.
“It’s another huge blow,” said Wrobel. “Bunker Hill used to be the elite area of downtown, and this move takes it down to about 76 percent occupied while it used to be single-digit vacancy. There’s a magnet that L.A. Live has with restaurants and clubs and that’s now taking office people with it.”
Representatives of LBA and MPG did not return calls. KPMG declined comment.
The accounting firm moved to 355 S. Grand in 1999 with a lease of almost 99,000 square feet, according to CoStar Group Inc. It grew to occupy 176,000 square feet over the years, but in the past few years has put approximately 50,000 square feet of its leased space on the sublease market as the firm has streamlined office workspace.
The move is expected to allow the company to shed that unused space.
Though it’s not fully clear why KPMG decided to move, brokers said the company could also have been seeking a more updated building and more attractive floor plates in a submarket that has the kind of popular amenities that would allow it to recruit young talent.
Still, basic economics could be behind the decision.
Average monthly rental rates at 550 S. Hope are $1.94 a square foot, less than half the asking rent of $4.13 at 355 S. Grand, according to CoStar.
LBA is also on better footing than MPG, and therefore better positioned to offer concessions and provide additional funding for KPMG to build out its new office space.
Given its financial struggles, MPG has stopped making such offers to tenants. However, it’s not clear whether MPG’s financial uncertainty had any bearing on KPMG’s decision to move.
Scott Steuber, principal at Avison Young Inc. in downtown, said MPG’s situation might have influenced the decision to relocate, but it likely wouldn’t have been the sole motivation.
“I think there is some uncertainty, as everyone would expect, but it comes down to the bottom line: Which gives them the best economic solution?” he said. “If there is uncertainty but MPG gives them a better deal, I think MPG would still win out.”
