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Brookfield’s Downtown Los Angeles Office REIT Defaults on Office Tower Loans

Brookfield DTLA Fund Office Trust Investor Says It Hasn't Paid As Required on Two Buildings
Brookfield DTLA Fund Office Trust Investor owns the 777 Tower at 777 S. Figueroa St. in downtown Los Angeles. The 52-story office skyscraper was built in 1991. (CoStar)
Brookfield DTLA Fund Office Trust Investor owns the 777 Tower at 777 S. Figueroa St. in downtown Los Angeles. The 52-story office skyscraper was built in 1991. (CoStar)
CoStar News
February 13, 2023 | 7:42 P.M.

A fund that owns office towers in downtown Los Angeles disclosed it has defaulted on loans related to a pair of office skyscrapers, another sign of distress for the downtown L.A. office market that has weakened since the pandemic's start.

Brookfield DTLA Fund Office Trust Investor, a bellwether for the city's downtown office space, said subsidiaries that owned the 52-story Gas Company Tower at 555 W. 5th St. were in default on roughly $465 million in loans related to the building, according to a filing to the Securities and Exchange Commission. Lenders now may foreclose on the building, but the lenders had yet to exercise any of their options after the default as of Feb. 10.

Meanwhile, Brookfield DTLA defaulted on roughly $318.6 million in loans related to its 52-story 777 Tower at 777 S. Figueroa St., according to the filing. Similar to the Gas Company Tower, lenders have not exercised their options after the default, which includes foreclosure, as of Feb. 10. CoStar Group leases space in the 777 Tower.

A representative for Brookfield DTLA Fund Office Trust Investor, a publicly traded fund formed and partially owned by Canadian real estate giant Brookfield, declined to comment to CoStar News.

The loan defaults are another sign of struggle for office real estate owners in the nation's second-largest city as remote working policies enacted in the pandemic hamper demand. National office real estate demand has been curtailed since 2020, with vacancy at 12.8%, its highest since the Great Recession, according to CoStar data.

Real estate industry analysts long have tracked Brookfield DTLA as a bellwether for the downtown Los Angeles office market after it was formed in 2013. In November, Brookfield DTLA warned investors and lenders that it wasn't able to meet "material financial covenants contained in the loan agreements" due to declining cash flows, net operating income and value of its properties.

Downtown Property Portfolio

The Brookfield DTLA fund, partially owned by Brookfield, owns six Class A office properties and a retail center in downtown Los Angeles totaling roughly 7.6 million square feet.

Those properties include the mall FIGat7th, the 1.4 million-square-foot Bank of America Plaza and the soon-to-be-finished 785-unit Beaudry apartment building. The disclosed February loan defaults have no bearing on other properties in the portfolio.

The fund had roughly $2.3 billion of total consolidated debt as of Sept. 30 and its "substantial indebtedness" required it to use "a material portion of our cash flow to service interest on our debt," according to the latest figures disclosed in November. The company's debt matures in 2023 and 2026 with $821.7 million due by the end of 2023, according to the November filing.

Downtown Los Angeles office owners continue to grapple with historically weak demand, but this market also struggled with relatively high vacancy rates prior to the pandemic.

The market's vacancy rate is 18.8%, up 8% year over year, and above the greater L.A. average of 15%, according to CoStar data. Meanwhile, the market's average rent is $39.31 per square foot, below the greater L.A. average of $42.13 per square foot.

"Demand continues to be soft, and there's no end in sight to downtown L.A.'s office pains," said Ryan Patap, senior director of market analytics in CoStar Group's Los Angeles office.

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