Brookfield Defaults On Loan Tied To 12-Building Office Portfolio

A Brookfield real estate fund has defaulted on a loan it secured in 2018 for a dozen office buildings, primarily in the D.C. suburbs. 

The $161M loan transferred to a special servicer that is working with Brookfield on a "pre-negotiation agreement," according to a filing first reported by Bloomberg. 

The mortgage was secured by the firm's Brookfield Strategic Real Estate Partners II fund in 2018, according to a DBRS Morningstar report on the loan. At origination, the senior mortgage of $223M as well as two mezzanine loans were obtained to pay off existing debt after BSREP II acquired the two portfolios: six buildings from WashREIT for $234M in 2016 and a six-building portfolio from TA Realty for $107M in 2017. 

Below are the properties in the portfolio, according to the 2018 rating report from DBRS Morningstar. 

• One Central Plaza, a 271K SF building in Rockville, Maryland.
• West Guide Office Park, a 233K SF property in Rockville.
• One Metro Square, a 227K SF building in Rockville.
• 6110 Executive Blvd., a 206K SF building in Rockville.
• Arlington Square, a 140K SF building in Arlington, Virginia.
• UCC 1, a 124K SF building in Orlando, Florida.
• Montrose Metro, a 120K SF building in Rockville.
• Jefferson Plaza, a 115K SF building in Rockville.
• UCC 3, a 104K SF building in Orlando.
• 1355 Windward Concourse, a 103K SF building in Alpharetta, Georgia.
• Wayne Plaza, a 102K SF building in Silver Spring.
• Prince Street Plaza, a 53K SF building in Alexandria, Virginia.

The buildings were primarily built in the 1970s, 1980s and 1990s. The portfolio was 78.9% occupied when the loan was issued, but Bloomberg reported occupancy had dipped to an average of 52% last year. 

Nine of the buildings are located in the D.C. area, where vacancy rates have risen to all-time highs as many tenants, especially the federal government, still haven't fully returned to the office. As the industry grapples with high interest rates, experts have predicted an uptick in defaults on office loans this year. 

“We have always focused on quality, so 95% of what we own are trophy and Class A buildings that continue to see strong demand globally and benefit from the flight to quality,” a Brookfield spokesperson said in an emailed statement. “While the pandemic has posed challenges to traditional office in some parts of the US market, this represents a very small percentage of our portfolio.”

This isn't the first default for Brookfield this year. In February, it defaulted on loans totaling $784M tied to two Downtown Los Angeles office towers. Those defaults came weeks after Columbia Property Trust defaulted on a $1.7B loan secured by a seven-building office portfolio.

All of those defaults came on loans that were packaged as commercial mortgage-backed securities. In a report earlier this month, J.P. Morgan analysts estimated that nearly $39B of CMBS loans backed by office buildings would default, or roughly 21% of all CMBS office loans.