Brookfield Takes $111M Write Down on DTLA's Wells Fargo Tower

Brookfield has taken a write down of the South Tower of DTLA’s Wells Fargo Center by $111M—about a quarter of the trophy office building’s value—and is blaming the loss in value on the Measure ULA property transfer tax that went into effect on April 1 in Los Angeles.

The lower valuation was disclosed in an annual report by the Brookfield DTLA Fund Office Trust Investor, a publicly traded fund that owns six office buildings—including the Wells Fargo Center at 355 South Grand Avenue—and a retail center in DTLA, according to report in TheRealDeal.

The report blamed the write down on Measure ULA, the new property transfer tax that adds a 4% tax on all residential and commercial sales over $5M and a 5.5% tax on sales over 10%.

Brookfield said the tower was valued at $421M at the end of 2021; by the end of 2022, the value again dropped to $311M.

The DTLA fund also said in the report that the cash generated by its portfolio “is not sufficient to cover its investing and financing activities, including upcoming debt obligations, leasing costs and capital expenditures,” TRD reported.

In February, the Canadian real estate giant defaulted on $784M in loans for two high-profile Downtown Los Angeles office towers, including $465M owed on the Gas Company Tower and $319M in loans for 777 South Figueroa St., also known as the 777 Tower.

Measure ULA—an initiative that was approved by a lopsided 58% to 42% margin in a state referendum in November—is not delivering the kind of tax revenue, earmarked to support a new housing fund, proponents of the measure told voters to expect if they passed it.

An analysis from the City Administrative Office in Los Angeles now estimates that Measure ULA will generate up to $672M in the fiscal year that begins on July 1 and end on June 30 next year.

Supporters of Measure ULA told voters on the city’s voter information pamphlet—the official ballot information provided to voters that explains what an initiative aims to accomplish—said the property transfer tax would generate $900M per year, based on real estate sales volume in the fiscal year that ended in June 30 2022.

This claim was amplified by a UCLA analysis published in September that estimated that the transfer tax would generate $923M. The new property transfer tax adds a 4% tax on all residential and commercial sales over $5M and a 5.5% tax on sales over 10%.

Neither of the earlier estimates included an important caveat: they assumed all the sales they based their estimates upon would actually close. That may happen in UCLA lab exercises, but opponents of Measure ULA can say “I told you so:” they warned last fall that rising interest rates and the approval of the transfer tax would have a chilling effect on sales transactions.

Voters will get another chance to decide if that return is sufficient to keep Measure ULA in effect:

A petition calling for a new referendum on local special tax increases, spearheaded by Kilroy Realty, was certified by California’s Secretary of State to have been signed by more than 1M registered voters, the threshold needed to place the referendum on the state’s 2024 ballot.