Canadian real estate giant Brookfield is poised to lose the highest-profile asset in its Downtown Los Angeles office portfolio.
The 54-story Gas Company Tower has been placed in receivership by the Los Angeles 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.
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 property," with proceeds from any sale used to pay creditors.
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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 last week from Brookfield, and it includes Matthew Heyn, a vice chair, Sean Fulp, a vice chair, and Tina Minook, a regional managing director.
In February, Brookfield defaulted on two senior loans backed by the tower at 555 West 5th 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.
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 includes the 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 is the third involving DTLA "trophy" office towers: 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.
Coretrust's $65M mezzanine loan from Oaktree—with an interest rate of nearly 9%—initially came due in December 2021, but Oaktree and Coretrust reached a forbearance agreement that extended the loan until the middle of last year.