Vacancies From Bank Merger May Top Expectations

Virtually all the First Interstate Bank office space in downtown Los Angeles is likely to be vacated after the bank is taken over by Wells Fargo & Co., a top First Interstate executive disclosed Wednesday.

The virtual disappearance of downtown L.A’s largest single office tenant would strike a severe blow to the central city’s commercial real estate market, which had shown signs of a turnaround this year after a long and steep decline in rents and property values.

First Interstate occupies about 1.5 million square feet of space downtown, including its headquarters offices in the landmark 73-story First Interstate World Center, the city’s tallest skyscraper.

With nearly a quarter of all downtown office space currently empty, “it is a market that is already suffering,” said Carol Shatz, president of the Central City Assn., a downtown business lobbying group. “Think about what it does for [stores] because those employees are not there. It should be a concern to the entire city.”

The predictions came from Stuart Laff, First Interstate executive vice president of corporate properties, at a real estate seminar in Century City. Laff estimated that about 1.4 million square feet of First Interstate office and commercial space will be affected by the merger.

“It’s a good number,” Laff said in an interview after the breakfast seminar, though he emphasized the estimate is his own and he will not be involved in making the final decision.

Laff’s estimates of excess space are much larger than expected and the first to be revealed by an executive of either First Interstate or Wells Fargo. “No one wants to say anything because of the economic impact,” Laff said, adding facetiously, “They are going to kill me for this anyway.”

First Interstate spokesman Ken Preston said Wells Fargo will decide the fate of the Los Angeles-based bank’s real estate holdings after the merger is completed at the beginning of next month.

“We have had no notification as to what office buildings they are going to use,” Preston said.

Kathleen Shilkret, a Wells Fargo spokeswoman, said the bank cannot say how much real estate it will need following the merger. “However, a large amount of downtown space is not going to be dumped on the market at the time of the close of the merger,” she said.

Even if Wells Fargo moves slowly to dispose of First Interstate’s space, real estate brokers say, the merger has already had an effect on the market.

Whitley Collins, a real estate agent for broker CB Commercial, said several tenants looking for space are waiting to see if the takeover results in lower rents and larger move-in incentives.

“Nobody wants to make any commitments before they make a decision,” Collins said. “It’s more [space] than people thought. Landlords will be really concerned.”

About half of First Interstate’s downtown office space is located in a huge data-processing center on the west side of the Harbor Freeway.

The bank also occupies about half of the 62-story First Interstate Tower, a thin, dark-glassed building that was the site of a deadly fire in 1988.

The bank also occupies several of the top floors in the First Interstate World Center, where senior executives enjoy 360-degree views from a perch more than 1,000 feet above 5th Street. The top of the marble-clad skyscraper is crowned by four huge First Interstate logos covered in gold leaf.

Robert Maguire, whose real estate company developed and manages the tower, said First Interstate has long-term leases for its space, which will probably be sublet to other tenants.

As for the gold-leaf-covered logos, Maguire said, “they certainly go.”