Brookfield Office Properties plans to purchase four downtown LA skyscrapers in a deal Proposition 13 activists say would free the company from millions of dollars in taxes.
Brookfield Office Properties, which is in the midst of a major deal to purchase four downtown L.A. skyscrapers for $2.1 billion, is drawing fire from activists seeking to amend Proposition 13. They accuse the company of using a loophole in the law to escape paying tens of millions of dollars in property taxes on the Wells Fargo Tower, KPMG Tower, Gas Co. Tower and 777 Tower.
"The word of the day is greed, and that’s what we’re dealing with here," said Peggy Mears of the Alliance of Californians for Community Empowerment.
Under a deal to purchase the towers from MPG, formerly Maguire Properties, Brookfield "will own approximately 47% of the fund and include institutional partners who will hold the remaining approximately 53% interest," according to a news release from the company. A new fund, DTLA, will own the properties.
Because no one corporate entity or individual would own more than 50 percent of DTLA, state law enacted as part of Proposition 13 requires the county to assess the properties at the pre-sale value of $1.1 billion - roughly half of the expected selling price.
Bottom line: Brookfield, one of the largest office complex owners in the U.S., could pay up to $10 million less in annual property taxes, according to ACCE. "These corporations are not paying their fair share and its time we demand they do," said Mears as she stood outside the Wells Fargo Tower. (Activists planned to hold a news conference there Tuesday to argue public education and social services are suffering from the loophole.)
Asked to comment on the allegations, Brookfield issued a statement: "It is the policy of Brookfield Office Properties to not comment on transactions that are not closed."
Many corporations structure deals this way to save money, according to the California Tax Reform Association 2010 report, "System Failure: California's Loophole-Ridden Commercial Property Tax."
"Commercial property is able to exploit huge loopholes in the law to avoid reassessment upon change in ownership," the report said.
ACCE hopes to use the Brookfield deal as an example to pressure lawmakers to close the Prop. 13 loophole. To date, various attempts in the state legislature to change the law have failed amid arguments from businesses that they are overtaxed and any change would be a job killer. One bill would have required counties to reassess the value of a commercial property any time 100% of it was sold.
The loophole has contributed to a dramatic shift in the tax burden. In 1975, commercial properties shouldered nearly half the tax burden in L.A. County. Now they account for about 30 percent, while residential properties' share went from just over 50 percent in 1975 to nearly 70 percent today, according to statistics compiled by the California Tax Reform Association (based on data provided by the L.A. County Assessor).