Ghost kitchen accuses Brookfield of water damage in DTLA basement

The owner of a basement business beneath a landmark building of converted lofts in Downtown Los Angeles has accused Brookfield Properties of causing water damage. It seeks $5 million.

The affiliate of City Storage Systems, a locally based ghost kitchen and delivery firm, filed a lawsuit against affiliates of the New York-based investor over damage under the Subway Terminal Building at 417 South Hill Street, near Pershing Square, Law360 reported.

The City Storage affiliate, 417 S. Hill Street LA, accused Brookfield Properties Multifamily and FC Subway Terminal Lessor of refusing to take responsibility for water damage to the  subterranean floors it owns beneath the historic building known as Metro 417.

City Storage also accused Brookfield of failing to remediate the damage since ponds and pools of water, mold, a “strange musty odor” and wet dripping walls were found several years ago throughout the basement, according to the complaint.

“All of these actions have and continue to diminish, damage and prevent plaintiff’s peaceful and reasonable use and enjoyment of the lower-floors property, reduce the value of the lower-floors property, and cause plaintiff to incur millions of dollars … in property damage, deferred maintenance and repairs required,” the City Storage Systems affiliate alleged.

FC Subway owns the 12-story Beaux Arts building that opened in 1925 as the main terminal for the Pacific Electric Railway, whose last Red Car came to a stop in 1961.

The Brookfield affiliate bought the Subway Terminal Building in 2002 for an undisclosed price, then converted the national landmark and city historic-cultural monument into 277 luxury apartments at a cost of $60 million. Metro 417 opened in 2005.

In 2007, FC Subway subdivided the property between the upper floors and the subterranean floors, which the Brookfield affiliate then sold. The basement includes at least two levels.  

In 2018, the City Storage Systems affiliate bought the basement for an undisclosed sum, according to the complaint. City Storage is the parent company of CloudKitchens and other brands, which bought 40 properties in two dozen cities prior to the pandemic for $130 million, according to the Wall Street Journal.

But within a year of acquiring the property, the basement owner discovered extensive water damage and mold growth in the lower-level floors, the basement owner said.

City Storage Systems hired engineering consultant Wiss Janney Elstner Associates in 2021. The firm dentified significant water damage in the floors owned by its affiliate. The next year, FC System retained its own consultant, according to the complaint.

The City Storage Systems’ consultant uncovered pooled water throughout the basement, mold, a “strange musty odor,” water dripping down the walls and ponds of water behind brick walls, according to the suit.

Though the parties signed a tolling agreement in July last year, Brookfield refused to accept responsibility for the water damage, address the basement owners’ concerns or plan remediation work, the City Storage Systems affiliate said. 

The agreement expired in July with no resolution.

The suit accuses Brookfield and FC Subway of breaching their responsibilities under the 2007 agreement subdividing the property, according to Law360. The basement owner also brought breach of fiduciary duty, negligence and nuisance claims against the pair.

The City Storage Systems is seeking $5 million in damages and an award compensating for the decreased fair market value of the lower floors. Its attorneys, as well as attorneys for the Brookfield affiliates, did not return requests for comment by Law360.

— Dana Bartholomew

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