Brookfield fails to pay a $465 million loan package for the Gas Company Tower at 555 W. 5th St. and $319 million in loans for 777 S. Figueroa St.
A wave of defaults on office towers has hit downtown Los Angeles as demand for office space continues to decline. Brookfield Corp., a major office owner in the area, defaulted on $784 million worth of loans on two towers, according to an SEC filing on February 10th. And while these defaults are occurring far from the Westside, the fact that many corporate executives live in areas like Palisades and Santa Monica could be contributing to the decline of downtown in a work environment changed by a pandemic.
Brookfield failed to pay a $465 million loan package for the Gas Company Tower at 555 W. 5th St. and $319 million in loans for 777 S. Figueroa St. The loan on the 52-story Gas Company Tower was comprised of a $350 million mortgage loan, a $65 million mezzanine loan and a $50 million junior mezzanine loan. The 52-story tower at 777 S. Figueroa St. was made up of a $269 million mortgage and a $50 million mezzanine loan.
This is not an isolated incident as other buildings have also faced foreclosure due to missed payments. In January, Oaktree foreclosed on Coretrust Capital Partners’ 48-story tower at 444 S. Flower St., which it had purchased in 2016 for $336 million with a Bank of China loan of $230 million that year. After missing the due date on its loan with Oaktree in 2021, Coretrust and Oaktree reached a forbearance agreement for Coretrust to pay by May 31 last year, but when they missed their payment, Oaktree initiated foreclosure proceedings.
Similarly, last year saw the Broadway Trade Center at 801 S. Broadway foreclosed upon as Starwood Capital acquired the building through public foreclosure auction after it defaulted on loans.
The pandemic’s shift towards remote work has caused demand for office space in downtown Los Angeles to plummet even further with vacancy rates hovering around 22%, according to Jones Lang LaSalle Inc.’s Q4 report from last year. Asking rents averaged out at $3.86 per square foot during this period while LA County had an asking rent of $4.14 per square foot.
As companies continue to embrace remote work policies post-pandemic, it remains uncertain how long it will take before demand returns to pre-pandemic levels or if businesses will permanently change their approach toward commercial real estate altogether.
“The office environment downtown is not appealing,” Shlomi Ronen, a managing principal and founder of Dekel Capital told the LA Business Journal. “I don’t know of a single company CEO who wakes up in the morning, has a home in Beverly Hills or in the Palisades or Pasadena and says my goal is to go spend my day living and working in downtown.”