Brookfield Defaults on DC Area Office Portfolio
The $161 million loan backed by more than a dozen buildings goes to special servicing.
Canadian real estate giant Brookfield has defaulted on a $161.4M mortgage backed by more than a dozen office buildings, mainly in the DC market.
The loan was transferred to a special servicer who is working “with the borrower to execute a pre-negotiation agreement to determine the path forward,” according to a filing, Bloomberg reported.
Among the dozen buildings in the Brookfield portfolio, occupancy rates averaged 52% in 2022, down from 79% in 2018 when the debt was underwritten, according to the report. Monthly payments on the mortgage’s floating-rate debt jumped to about $880,000 in April from just over $300,000 a year earlier as the Federal Reserve raised interest rates.
This is the second major default for Brookfield this year. In February, Brookfield 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.
“An event of default has occurred [and] lenders may exercise their remedies,” Brookfield’s DTLA Fund Office Trust Investor said in an SEC filing, adding that remedies may include foreclosure.
Brookfield said in the filing it has not exercised any option to extend the maturity date on the loans, which came due on Feb. 9.
The company’s DTLA REIT, formed in 2013 after Brookfield’s $2B acquisition of office tower owner MPG Office Trust, has been considered a bellwether for the DTLA office market in the past 10 years. The fund owns nearly 8M SF of DTLA office space.
Brookfield’s DTLA office fund warned in a November SEC filing that it was running out of cash and might start missing loan payments.
The financial package in default on the 52-story Gas Company Tower, located at 555 West 5th Street, includes a two-year, floating rate $350M mortgage provided by Citi Real Estate Funding and Morgan Stanley, a $65M mezzanine loan and a $50M junior mezzanine loan. The mezzanine loans were provided by Principal Financial Group.
The financing that came due on 777 South Figueroa—also a 52-story tower—includes a $269M mortgage provided by Wells Fargo and a $50M mezzanine loan.
In a Nov. 10 filing with the SEC, Brookfield’s fund said it was in compliance with all of its loan agreements as of Sept. 30, but declining cash flows, net operating income—and the declining value of the office towers—were putting it on the precipice of foreclosures.
Brookfield reported in November that the fund had about $2.3B of total consolidated debt as of Sept. 30 and said in its filing that its “substantial indebtedness” required the fund to use “a material portion of our cash flow to service interest on the debt.
Including the two 52-story DTLA towers, the Brookfield fund’s office portfolio in DTLA totaled nearly 8M SF, including the 1.4M SF Bank of America Plaza.
The default was the third involving DTLA “trophy” office towers in February: Oaktree initiated a foreclosure on its equity stake in Coretrust Capital Partners’ 48-story DTLA tower at 444 South Flower Street, a building made famous as the fictional HQ in the hit 1990s television show L.A. Law.