One of downtown L.A.'s biggest office owners is forecasting more trouble ahead for its portfolio after defaulting on loans related to a pair of high-rises earlier this year in the nation's second-largest city.
Brookfield DTLA Fund Office Trust Investor said it began the process for voluntary delisting and deregistration of its Series A preferred stock, according to a March 31 filing to the Securities and Exchange Commission.
The delisting comes as the company sees its share price trading near a record low and after Brookfield DTLA said in February it had defaulted on loans related to two prominent office towers in downtown Los Angeles, the 777 Tower and the Gas Company Tower. Brookfield DTLA's stock fell below $1 on Monday after the news but later recovered to close at $1.66.
Office REITs have seen the biggest negative total return this year among real estate investment trusts as office demand continues to remain well below pre-pandemic levels.
A representative for Brookfield DTLA, a publicly traded fund formed and partially owned by Canadian real estate giant Brookfield, declined to comment to CoStar News. CoStar Group is a tenant in the 777 Tower.
Brookfield DTLA also faces liens and potential unpaid interest on other properties in its portfolio, which includes six Class A offices and a retail center in downtown Los Angeles totaling roughly 7.6 million, according to its filings.
Mechanics liens have been filed on Wells Fargo Center North Tower, EY Plaza and the 777 Tower, according to the filing. The state of California's website defines these liens as a hold on a property "filed by an unpaid contractor, subcontractor, laborer, or material supplier, and is recorded with the county recorder's office. If unpaid, it allows a foreclosure action, forcing the sale of the property in lieu of compensation."
Foreclosure Warning
Meanwhile, Brookfield DTLA said it may not be able to pay upcoming interest payments on its Wells Fargo Center North Tower and EY Plaza buildings because of a cash shortage.
Brookfield DTLA warned investors that lenders may choose to foreclose on its 54-story Wells Fargo Center North Tower and its 41-story EY Plaza, according to the filing. Meanwhile, Brookfield DTLA said it doesn't intend to pay future interest expenses accrued on its 777 Tower and Gas Company Tower loans, according to the filing.
"There are several potential outcomes with respect to 777 Tower Loans and Gas Company Tower Loans, including negotiating a modification to the loans, refinancing the loans, or consensual short sales," according to the filing. "However, there is no assurance that we will be successful in achieving any of these potential outcomes."
Issues related to Brookfield DTLA's portfolio also extend to its 316,000-square-foot Figat7th retail center in downtown Los Angeles, which is more than 89% leased, according to the filing.
A lender granted a short-term extension of a debt maturity date from March 1 to April 3, per the filing. Brookfield DTLA is asking the lender to extend the debt for three years but an agreement was not in place as of March 31.
If the loan isn't extended, the lender may decide to foreclose on Figat7th, according to the filing. Retailers at the shopping center include Bath & Body Works, H&M, Sephora, Victoria's Secret, Zara, Gold's Gym, Mendocino Farms and California Pizza Kitchen.
Brookfield DTLA had $2.3 billion of total consolidated debt as of March 31, including $1.1 billion maturing in 2023 and $400 million maturing in 2024, according to the filing. The company said market conditions haven't improved for office space in downtown Los Angeles since its last quarterly report was filed on Nov. 10.
The properties in the portfolio are 77.3% leased, according to the filing.