Arco Unit Will Move Its Offices to Bunker Hill, Relocating 500

Arco Products Co. on Wednesday said it will move its headquarters from the so-called West Bank of downtown Los Angeles--the once red-hot commercial real estate market west of the Harbor Freeway--to a prime skyscraper on Bunker Hill.

Arco Products, the marketing and refining arm of Los Angeles-based energy giant Arco, said it will relocate about 500 workers into eight floors in the former headquarters of the now-defunct Security Pacific Bank. Under the 15-year lease, the name of the 55-story building--now called 333 South Hope Street--will be changed to Arco Center.

The deal reflects the continued tug of war over tenants among downtown Los Angeles landlords struggling to emerge from a long slide in rents and property values. By lowering rents dramatically, the owners of premier, centrally located skyscrapers have been able to siphon off the tenants from less prestigious buildings in less desirable areas.

“The whole market is depressed and there is little [rent] differential . . . for the best space in town versus the second-best space in town,” said John Gordon, managing partner of the real estate investment firm Aston Partners.

The move, which is expected to take place next year, does not involve the parent company’s nearby corporate headquarters in the landmark Arco Plaza on Flower Street.

Neither Arco Products nor Metropolitan Life Insurance Co., which owns the Bunker Hill skyscraper, released the financial terms of the deal. But Arco Products spokesman Jim Gruettner said the company will pay less rent than it currently does.

Gruettner said Arco Products never considered leaving downtown and decided to take advantage of the bargain rents in the area, among the lowest in Southern California. “There was ample quantity of space available,” Gruettner said.

The deal will help fill up the huge chunk of space left vacant atop Bunker Hill after Security Pacific was taken over by Bank of America several years ago. That empty space depressed rents in Bunker Hill skyscrapers and across downtown.

“It’s space that other landlords don’t have to compete against anymore,” said Kent Handleman, senior asset manager at Metropolitan Life. “It’s very positive for the Bunker Hill market from a landlord’s perspective.”

However, the lease--one of the largest signed in downtown Los Angeles in recent years--is a mixed blessing for the area. When the move is completed, downtown Los Angeles will not gain any new employees and Arco Products will end up leasing less space than it currently does.

The fallout will be particularly painful for landlords on the western edge of downtown across the Harbor Freeway. During the mid- and late ‘80s, developers and businesses began to jump across the freeway as rents on Bunker Hill and the financial district soared. Developers announced plans for billion-dollar commercial and residential projects on the long-neglected West Bank, and even the Pacific Stock Exchange moved its trading floor to the area.

“At one time this was the promised land” of downtown Los Angeles, said Jack Kyser, chief economist for the Economic Development Corp. of Los Angeles County.

But many of the skyscrapers never made it off the drawing board and the few that were built remain mostly empty or face the prospect of losing tenants. The future of First Interstate Bank’s giant data-processing center, for example, remains uncertain after the bank’s recent acquisition by Wells Fargo & Co.

But Arco Products’ current landlord--San Francisco-based Bristol Group--says it’s optimistic about the near future for the West Bank despite facing the loss of its largest tenant. The 33-story building will be well positioned to take advantage of an expected turnaround in the downtown market in the next few years, said Bristol Group spokesman Jim Curtis.

“We think that downtown L.A. is the last [market in the region] to come back,” Curtis said. “But it will come back.”