Brookfield Defaults On $784M In Loans For 2 DTLA Office Towers
Brookfield, a major office landlord in Downtown Los Angeles, has defaulted on loans linked to two of its Downtown office towers totaling $784M.
Subsidiaries of Brookfield DTLA Fund Office Trust Investor defaulted on $465M worth of loans at the Gas Company Tower at 555 West Fifth St. and $319M worth of loans in connection with the 777 Tower at 777 South Figueroa St., according to a filing with the Securities and Exchange Commission on Friday.
CoStar, which was the first to report on the default, has offices in the 777 Tower, which sits above the FIGat7th retail center.
These defaults come as Downtown's office market lags in its recovery from the effects of pandemic lockdowns and a broad workplace shift toward doing more work from home. A number of office buildings have been languishing on the market and one foreclosure is seemingly in the works at 444 South Flower St.
The loans on the Gas Company Tower are a $350M mortgage, a $65M mezzanine loan and a $50M junior mezzanine loan, the filing states. The mortgage was provided by Citi Real Estate Funding and Morgan Stanley, with the mezzanine loan coming from a Principal Financial Group-linked entity, The Real Deal reported.
The initial maturity date for the Gas Company Tower loans was Feb. 9. Though there were three options for one-year extensions, the DTLA office fund did not exercise those options, the filing states. "An Event of Default (as defined in the underlying loan agreements) has occurred and is continuing," the filing said. As of Feb. 10, the lenders had not begun to foreclose on the property.
The $318.6M collection of loans on the 777 Tower includes a $268.6M mortgage and a $50M mezzanine loan. Of that, $288.9M is outstanding, the fund said in its filing. MetLife provided a 2018 mortgage for the property, The Real Deal reported.
On this property, the mortgage loan has defaulted and "as a result of the default under the mortgage loan, an Event of Default (as defined in the underlying loan agreements) has occurred and is continuing under the mezzanine loan," according to the filing. It also noted that Brookfield didn't secure a rate cap on the loan, which was grounds for the default.
Lenders on the 777 Tower have not exercised any of their rights to foreclose as of Feb.10, the filing said. Brookfield is building a 64-story apartment tower next to the 777 Tower that is slated to open later this year.
Brookfield's Downtown LA office fund, by its own admission, is encumbered by "substantial indebtedness."
The Brookfield Downtown office fund, which Brookfield partially owns, owns 7.6M SF in Downtown across six high-rise office properties and the FIGat7th shopping center in downtown Los Angeles, according to filings with the SEC.
As of September 2022, the fund had approximately $2.3B of consolidated debt across its portfolio. Nearly $822M of that will mature by the end of 2023, a November filing with the SEC shows.
This year is anticipated by a number of industry watchers to be one in which we see a wave of defaults, foreclosures and handing over of keys.
"With rising interest rates and soft underlying market conditions, expect a wave of distressed office properties starting next year as some owners either decide to give back their assets to their lenders or go through the foreclosure process," a fourth-quarter office report from Savills noted. Savills also has offices in the 777 Tower.
