Posted on 05/04/2023 6:27:59 PM PDT by george76
Troubles of Brookfield DTLA show how some office-sector bets are starting to unravel
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A major Los Angeles office owner operated by Brookfield Asset Management is struggling to make mortgage payments as vacancies and rising interest rates disrupt the city’s commercial real-estate market.
The company, known as Brookfield DTLA Fund Office Trust Investor Inc., owns six Los Angeles office buildings and a retail center. Five of the office buildings face the risk of foreclosure, according to its public filings, and at least two of its mortgages are in default.
The company on April 21 filed to delist from the New York Stock Exchange after its market capitalization fell below $15 million. The company’s shares are down 87% since the start of the year to less than one dollar.
Brookfield DTLA’s troubles show how some bets on the office sector that held steady early on during the pandemic are starting to unravel amid rising vacancies and spiraling debt costs. The company is particularly vulnerable because the majority of its $2.3 billion in mortgages have floating interest rates and expire in 2023 or 2024.
Floating-rate loans, which often have shorter terms than fixed-rate mortgages, are emerging as flashpoints in a weakening office market. The cost of hedges that landlords buy to protect themselves against rising rates has surged, forcing them to either pay millions for a new hedge or default. When loans come due they are increasingly difficult to refinance because debt costs have risen, building values are down and many banks shy away from office mortgages.
Brookfield DTLA’s circumstances also reflect rising vacancies in Los Angeles, one of the country’s biggest office markets. Around 30% of office space in downtown Los Angeles was available for lease at the end of 2022,
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rising fear of crime
(Excerpt) Read more at wsj.com ...
“The company, known as Brookfield DTLA Fund Office Trust Investor Inc., owns six Los Angeles office buildings and a retail center.”
This is typical of the structure of these REITs. They isolate one or a few buildings in each legal entity, so they can walk away if necessary without the rest of the holding company being liable. The lender gets the buildings in a non-recourse type of deal.
What is the problem with interest rate-sensitive businesses like SVB being stupid and not hedging their rate risk when protection was cheap?
Dear CEO:
Brookfield would like to let you know that people are more productive in the office than in front of their TV or PC at home. There are fewer food breaks when in an office.
Brookfield
Dear CEO:
Brookfield is hosting a seminar on the improved productivity when staffers work in an office. We are having three of your fellow CEOs who have gotten their company’s productivity back relate their experiences.
Totally agree that productivity suffers when the wtf (wfh) model is in play.
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