Huge Landlord In LA Defaults On $755 Mil Loan As Remote Work Keeps Workers Out Of Office

What’s going on:  

Brookfield Corp., the parent company of the biggest office landlord in downtown Los Angeles, has defaulted on loans associated with two of its buildings instead of opting for refinancing, due to an unmet demand for space.  

According to a filing, the two affected properties from the Brookfield DTLA Fund Office Trust Investor portfolio are the Gas Company Tower, with its $465 million in loans, and the 777 Tower, with approximately $290 million in debt.  

November saw the fund manager give out a warning that foreclosure of these properties might be on the cards. 

The Brookfield downtown LA portfolio is encumbered with a whopping $2.28 billion in secured debt, as disclosed in a November filing. 

Why it matters:  

The Barclays analysts revealed a broad decrease in the values of comparable office buildings, as office vacancies climbed nationwide in the wake of the pandemic’s push towards more frequent remote working.  

In the fourth quarter of 2022, the vacancy rate in the Los Angeles central business district was recorded to be 22.7%, according to a Jones Lang LaSalle Inc. report.    

How it’ll impact the future:  

Office vacancy still hasn’t returned to what it was pre-pandemic, which means many organizations are losing money trying to hold on to these spaces.  

Remote work is still the norm for many, and workers aren’t going to give up this newfound flexibility so easily. This essentially means that organizations will need to restructure so that they aren’t losing money or defaulting on loans, and so that workers are also kept content.