Brookfield's Downtown L.A. Trophy Towers Falling Like Dominoes

A year ago, Brookfield’s Downtown Los Angeles office portfolio encompassed 8M SF, including four of the city’s highest-profile trophy towers. It was not a stretch to say that the Canadian REIT dominated the DTLA skyline.

What a difference a year makes: Brookfield has now defaulted or missed payments on CMBS loans encompassing more than $1B that are backed by three of its largest DTLA office trophies.

This week, Trepp disclosed that Brookfield has missed payments on a $275M loan backed by EY Plaza, a 41-story tower at 725 South Figueroa Street. The REIT has not made a payment in 30 days on the loan, which has been sent to a special servicer, Trepp reported.

The $275M loan backed by EY Plaza was originated in 2020 by Morgan Stanley and Wells Fargo and then sold to CMBS investors. The delinquent CMBS package includes a $170M senior loan and a $105M loan in the stack below it. The two-year deal was due in October of this year, after Brookfield opted for a one-year extension.

According to the Brookfield DTLA REIT’s annual report, the 964K tower at 725 South Figueroa was 23% vacant at the end of the year. Expenses for T.I. and landlord operations increased 200% last year and debt service on the CMBS loan increased to $1.4M per month from the March 2022 level of $655K per month.

At the end of April, lenders persuaded the Los Angeles Superior Court to clear the way for a foreclosure sale of Brookfield’s highest-profile trophy office property in DTLA.

The 54-story Gas Company Tower was placed in receivership by the Superior Court after CMBS lenders Citi Real Estate Funding an Morgan Stanley filed a lawsuit asking the court to appoint a receiver to pave the way for the sale of the property, in lieu of a bankruptcy proceeding.

In February, Brookfield defaulted on two senior loans backed by the Gas Company Tower, located at 555 West 5^th Street, totaling $350M in debt. According to court filings, the REIT failed to pay off the loan by the maturity date of Feb. 9 and it failed to pay an advance of $3.6M in property taxes by April 10. Brookfield also defaulted in February on $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.

Greg Williams of Trident Real Estate Group was appointed receiver and given the authority by the court to “market, advertise, promote and negotiate the sale,” of the Gas Company Tower, with proceeds from any sale used to pay creditors.

Williams has awarded the exclusive leasing and property management assignment to a Colliers team for the Gas Company Tower, which is the headquarters of Southern California Gas Co.

The Colliers team is headed by Ian Gilbert—who joined Colliers as an executive vice president in April from Brookfield—and it includes Matthew Heyn, a vice chair, Sean Fulp, a vice chair, and Tina Minook, a regional managing director.

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.