City Owns Surplus Offices but Still Rents

Six months after the Los Angeles Department of Water and Power vacated 25% of its San Fernando Valley headquarters building in a reorganization, the offices remain without tenants.

At the same time, the city is spending millions of dollars leasing space in private buildings elsewhere in the Valley. Today, the City Council is scheduled to consider whether to approve a three-year, $464,000 lease for space in a privately owned building on Van Nuys Boulevard.

Some city officials and observers say that the handling of the DWP building raises serious concerns about the city’s management of its vast real estate portfolio.

“The fact that the DWP is sitting on 70,000 square feet of vacant space at the Anthony Office Building is absolutely ludicrous,” said state Sen. Richard Alarcon (D-Sylmar), a former City Council member.

In all, the city spends $26 million annually on private leases, including about $2 million annually leasing private office space in the Valley. At the Anthony Building in Sun Valley, the DWP estimates that its 76,000 square feet of space could have netted $684,000 during the last six months if it had been leased to a private tenant, or could have saved that much for the city if it was used by another city department.

“Right now it is wasted space that we could be getting revenue from,” said Ron Merlo, the DWP’s director of corporate assets.

The City Council and a top city official have asked the DWP to refrain from renting the Sun Valley offices until the city has more time to acquire the space itself. Such bureaucratic delays, along with interdepartmental rivalry, have been cited as reasons the city continues to rent, even as it owns buildings with empty offices.

Councilman Joel Wachs, whose district includes the Anthony Building, recalled sitting on a committee last year that asked for a report on other possible city uses for the building.

“To watch it stay empty is almost inexcusable,” Wachs said. “It’s a beautiful building, and it’s almost tragic that it’s not being used when we have so many great needs.”

The DWP has also identified three other office buildings it owns in Van Nuys and Granada Hills as excess, totaling 25,000 square feet. One of the buildings has been empty for two years.

Merlo said he has notified the city General Services Department about the surplus properties but the city has not expressed interest.

“Too often the right hand doesn’t know what the left hand is doing,” Wachs said.

Phil Tondrault, director of leasing for the city General Services Department, said he uses a central database to try to find city-owned buildings before pursuing private leases.

“When we know space is available, we try to get people into that before we go to private office space,” he said.

Jeff Brain, president of the secession group Valley VOTE, said the failure to fully use city facilities is troubling.

“It shows there’s not a real strong management of the city’s leasehold properties or owned properties,” Brain said. “That’s the kind of inefficiency we’d like to see changed.”

As a member of the City Council until last November, Alarcon had proposed that a police station and other city departments be located in the Anthony Building.

The DWP is a semi-independent agency and has demanded compensation for use of its space by other city offices. S. David Freeman, the DWP general manager, said he has an obligation to get the most for city assets. The agency annually turns over a share of its revenue to the city, which absorbs it into the general fund to pay for city services.

Talks over how much compensation the DWP should get have bogged down--the DWP estimates $50 million or more while a city appraisal says the building is worth $36 million--and in the meantime, the fourth floor of the building has remained unused.

Chief Legislative Analyst Ron Deaton said he is waiting for a report on the property, which will allow him to revive negotiations.

Alarcon said the city could partially finance the deal with money saved by canceling the private leases it has throughout the Valley, thus keeping the money in the city family.

Complicating matters for the DWP, the City Council last year asked the agency to keep the Anthony Building off the private market for at least six months to allow a deal to be negotiated for city purchase or lease of the building. Deaton recently told DWP officials that he wants the building kept off the market for the near future to allow a chance to work out some city takeover of the property, said Frank Salas, a government affairs manager for the DWP.

“We do have a large vacancy of space, and we’ve had several [private sector] inquiries, but we tell them we can’t consider offers right now,” Salas said, adding that the FBI and the Los Angeles Unified School District are among those who have expressed interest in the building.

Deaton said a bond issue defeated by voters last month could have provided money to buy the building.

“During the bond stuff we just put it on hold for a little while,” Deaton said. “We’re getting back to it now.”

Deaton said the defeat of the measure complicates the issue because the city will have to find money elsewhere to buy or lease the building.

The DWP has asked for council permission to hire a commercial broker to help it sell or lease three dozen properties, including the Anthony Building.

Freeman, the general manager, downplays the significance of delays and the appearance of a rift between city agencies.

“I don’t think we’re close [in negotiations] at all,” he said, “but this building is going to be put to its full use in a reasonable amount of time.”