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Tag: distress

  • Brookfield’s $400M DTLA Office Loan Heads to Special Servicer

    Brookfield’s $400M DTLA Office Loan Heads to Special Servicer

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    Brookfield Asset Management is once again in hot water with a lender for a big downtown Los Angeles office tower.

    The alternative investment giant’s lender for its 1.4 million-square-foot Bank of America Plaza office tower at 333 South Hope Street has transferred a $400 million debt secured by the property to a special servicer, which is usually a sign that a lender foresees a growing chance of a borrower failing to pay off a loan before its maturity.

    The loan was transferred to special servicing in recent weeks, according to Morningstar. The landlord’s looming trouble with the debt stems from losing its third-largest tenant, law firm Sheppard Mullin Richter, which has long rented space within the Bank of America Plaza before inking a 119,000-square-foot lease last year across the street at CIM Group’s 350 South Grand Avenue.

    Sheppard’s lease in Brookfield’s tower expires at the end of the year and the firm plans to vacate, which will pull the property’s occupancy below 70 percent, according to Morningstar.

    Brookfield didn’t return a request for comment.

    Sheppard Mullin accounts for about 13 percent of the building’s net rentable area, according to a May Fitch Ratings report, and is the building’s third largest tenant. The law firm’s lease ends in December after which it reportedly makes the move to CIM Group’s City National 2CAL building at 250 Grand Avenue.

    Sheppard Mullin’s expected departure comes after another law firm, Alston & Bird, left the building after its lease expired in December.  

    That leaves the office tower with Capital Group Companies, which occupies about 27 percent of the net rentable area, as a key tenant. Its lease expires in February 2033, according to Fitch. 

    ​​It’s the latest hit to Downtown’s office market.  

    The area’s second-quarter vacancy rate sat at 32 percent, according to a market report from CBRE. The submarket’s also the most pressured, in the red by about 490,000 square feet and leading the negative net absorption for the greater Los Angeles area in the quarter, CBRE reported.

    Brookfield’s debt on the property matures in September, and refinancing L.A. office towers before the clock runs out has already proven difficult for Brookfield, amid waning demand for commercial real estate due to remote work trends and rising interest rates cutting into real estate values.

    Last year, the landlord lost control of two L.A. towers — the Gas Company Tower and EY Plaza — to a court-appointed receiver due to debt trouble, and it was in technical default on 777 Tower, even as it continued to service debt on the latter. The Gas Company and 777 Tower properties have since been marketed for sale by their respective receivers, but a potential buyer pulled out of a deal to buy 777 Tower earlier this year at a huge discount from its $319 million in debt.

    As of May, the borrower hadn’t disclosed how it plans to handle the Bank of America Plaza maturity or pursue refinancing, according to Morningstar.

    The likelihood of Brookfield failing to pay off the $400 million loan for 333 South Hope on schedule is no surprise to its lender. Fitch Ratings last year labeled the loan with a heightened risk of maturity default, and Wells Fargo, Goldman Sachs, Morgan Stanley and Citigroup — which collectively originated various portions of the property’s debt — were already reporting a loss on the deal.

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    JLL tapped to market Gas Company Tower in DTLA for sale


    Brookfield Deal to Sell 777 Tower in Downtown LA Collapses

    Brookfield’s deal to sell 777 Tower in Downtown LA collapses


    333 South Hope Street in LA

    Another Brookfield DTLA tower loan faces “maturity default risk”


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    Sam Lounsberry, Kari Hamanaka

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  • MetLife Forecloses on Starwood, Artisan Office in El Segundo

    MetLife Forecloses on Starwood, Artisan Office in El Segundo

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    MetLife Investment Management foreclosed on an El Segundo office building owned by Starwood Capital and Artisan Ventures, The Real Deal has learned. 

    MetLife paid $72.8 million for 1960 East Grand Avenue through a non-judicial foreclosure last month, according to a trustee’s deed filed with Los Angeles County. 

    Starwood and Artisan owed $83.9 million under a roughly $85 million loan from MetLife on the property, provided in 2020, records show. 

    The firms defaulted on the loan in February, prompting MetLife to schedule a foreclosure on the 257,000-square-foot building. 

    A representative for Starwood Capital and Artisan co-founder Mark Laderman both declined to comment. MetLife did not respond to a request for comment.

    Many office owners have chosen to hand back the keys on properties, given many lenders have pulled back from financing office buildings in light of remote work and a lack of tenant interest. Few buildings across Los Angeles County have actually gone through a non-judicial foreclosure — other landlords and lenders have agreed to deeds-in-lieu of foreclosure or receiverships. 

    MetLife’s foreclosure deal, which came to $283 a square foot, was roughly a 45 percent discount compared to what Starwood and Artisan paid for the property in 2020. 

    Starwood and Artisan acquired the building from a Brookfield fund, and had planned to redevelop an adjacent parking lot into 94,000 square feet of office space and a new parking structure. However, the plans never came to fruition. 

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    Isabella Farr

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  • Orange County Hotelier Falls Behind on Anaheim Marriott Loan

    Orange County Hotelier Falls Behind on Anaheim Marriott Loan

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    Tushar Patel, the Orange County hotelier who once ranked as the second-largest property owner in Anaheim behind Disney, has fallen behind on an $80 million loan tied to the Anaheim Marriott. 

    An entity controlled by Patel is more than 90 days delinquent on the loan, which currently has a balance of $69.8 million, according to Trepp data. The last payment on the debt came through in December. 

    Patel did not respond to a request for comment. 

    JPMorgan Chase Bank originated the loan in 2014 to refinance the 1,030-key hotel at 700 West Convention Way. The debt was then packaged into a commercial mortgage-backed securities deal. 

    The fixed-rate loan has an interest rate of 4.8 percent. That’s lower than the secured overnight finance rate — a standard benchmark rate for lending — over the last year.

    The loan was modified in 2020, when Patel requested financial relief in light of the pandemic, according to Trepp data. At the time, the property, which sits beside the convention center and just south of Disneyland, was only making about half of what was needed to service the debt. 

    But the property’s income snapped back with a vengeance. By 2023, the hotel was making five times what was needed to service the debt. It’s unclear what drove the delinquency. 

    The loan is set to mature in June, though the Patel entity has extension options. 

    Patel bought the property in 1999 for about $80 million, the Los Angeles Times reported at the time, marking his biggest deal to that point. 

    T2 Hospitality, the Patel family’s main company, owns the Springhill Suites by Marriott in Anaheim and a Residence Inn by Marriott in Anaheim. It has other hotels in Palm Springs, San Diego, Sunnyvale and Palo Alto. Its website lists the Anaheim Marriott as a “previous project.”

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    Isabella Farr

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  • Brookfield Deal to Sell 777 Tower in Downtown LA Collapses

    Brookfield Deal to Sell 777 Tower in Downtown LA Collapses

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    Brookfield Properties’ deal to sell 777 South Figueroa Street, a 1 million-square-foot office tower in Downtown Los Angeles, has fallen apart, according to sources familiar with the matter. 

    Consus Asset Management, an investment firm based in South Korea, pulled out of a deal to buy 777 Tower for $145 million. Commercial Observer first reported that the transaction fell apart. It’s unclear why Consus pulled out and the firm could not be reached for comment. Brookfield did not respond to a request for comment.

    Brookfield defaulted on $319 million in loans tied to the 52-story tower last year, after rising interest rates squeezed profits from the building. The firm put the property up for sale in the fall. 

    Sources previously told TRD that Brookfield scored at least 15 offers on the tower, which is almost half empty, after putting the property up for sale last fall. 

    The Consus deal, which was set to close at about $145 a square foot, would have marked another benchmark for office sales in Downtown L.A., an office market that has been plagued by defaults, landlords cutting and running, high vacancy and low trades on a price-per-square-foot basis. 

    In December, Carolwood, run by Adam Rubin and Andrew Shanfeld, bought the 1.1 million-square-foot AON Center at 707 Wilshire Boulevard for $147.8 million, or about $134 per square foot, in a deed-in-lieu of foreclosure.

    Earlier this month, developer Izek Shomof bought 617 West 7th Street, an office building in the same area of Downtown L.A., from the Swig Company for $20.5 million, or $94 a square foot. Swig had bought that property for $38.8 million in 2011. 

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    Isabella Farr

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  • Bank of SoCal Lists Santa Monica Apartments for Sale

    Bank of SoCal Lists Santa Monica Apartments for Sale

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    Bank of Southern California has listed three apartment complexes in Santa Monica for sale — properties formerly owned by developer Neil Shekhter, The Real Deal has learned. 

    NMS Properties’ Neil Shekhter

    The bank foreclosed on the three buildings at 1038 10th Street, 1007 Lincoln Boulevard and 1516 Stanford Street in February, L.A. County records show, after Shekhter defaulted on almost $16 million in loans tied to the properties. 

    At a public auction, Bank of Southern California foreclosed with a credit bid of $9.5 million, coming out to about $394,000 per unit.

    Now the bank is asking $10.8 million for the three buildings, which together total 24 units, according to listings on LoopNet for the property. At that price point of $450,000 per unit, Bank of Southern California could recoup some of its loss that came from Shekhter’s unpaid debt. A team led by JLL’s Luc Whitlock is marketing the portfolio for sale. 

    Shekhter paid about $10.6 million for the three buildings between 2015 and 2016, property records show.

    The buildings can be bought individually or as one portfolio, according to the LoopNet listing. Almost half of the units will be vacant at the time of sale. 

    The properties could be bought by owner-occupiers — someone who could occupy one of the units and rent out the rest, according to JLL’s marketing materials. 

    Shekhter and his firm, WS Communities, had refinanced the three properties in September 2022, using a business loan from Bank of Southern California, court records show. 

    Shekhter’s sons Adam, Alexander and Alan Shekhter, each signed unlimited personal guarantees with recourse, meaning if the properties could not pay back the loan, the brothers would be personally liable for paying it back, according to court documents. 

    Bank of Southern California had sued Shekhter’s sons over the defaulted loans, claiming the three “failed and refused, and continue to fail and refuse, to pay the sums due and owing to plaintiff, in breach of said guaranty,” court records show.

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    Isabella Farr

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  • Starwood, Artisan Default on El Segundo Office Loan

    Starwood, Artisan Default on El Segundo Office Loan

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    Starwood Capital and Artisan Ventures are on the brink of losing a 257,000-square-foot office building in El Segundo, The Real Deal has learned. 

    The firms have defaulted on an $84.8 million loan from MetLife Investment Management tied to the property, located at 1960 East Grand Avenue, according to a notice of default filed with L.A. County last month. 

    Starwood and Artisan, formerly known as Artisan Realty Advisors, is $960,800 behind on the loan, as of Jan. 25. Neither company responded to requests for comment. 

    The duo failed to “cure a covenant breach” and failed to pay default interest, among other things, all of which triggered a default. 

    MetLife provided the loan in 2020, records show, to finance Starwood and Artisan’s acquisition of the building and a neighboring parking lot for $133 million. The firms bought the property from Brookfield. 

    In 2022, Artisan and Starwood planned to redevelop the parking lot into 94,000 square feet of office space and a four-level parking structure, according to documents filed with the city of El Segundo’s planning department. The plans, however, were only in the beginning stages. 

    About 70 percent of 1960 East Grand Avenue is leased, according to online listings for the property. 

    The default comes after reports that Starwood and Artisan are in talks with another lender, Morgan Stanley, over $500 million in debt tied to the Pacific Coast Tower next door. 

    The companies are still in negotiations to extend or forgive the debt, to avoid default, according to sources familiar with the matter, given the office complexes are struggling with occupancy issues.  

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    Isabella Farr

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  • LA Apartment Owners Feel Rising Debt Distress

    LA Apartment Owners Feel Rising Debt Distress

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    MacFarlane Partners’ Landon Taylor and GH Palmer Associates’ Geoff Palmer with 427 West 5th Street (MacFarlane Partners, Getty, Google Maps)

    UPDATED, Feb. 2, 2024, 12:13 p.m.: When MacFarlane Partners finished Park Fifth, a 347-unit apartment tower in Downtown Los Angeles, the developer expected the property to be almost fully occupied, with enough income from the building to pay debt service almost two times over by 2022. 

    Based on that underwriting, Starwood gave MacFarlane a $105 million, floating-rate senior loan, according to data from Morningstar. 

    Then the Federal Reserve stepped in, hiking rates seven times over the course of 2022. 

    Because of this, the floating-rate caveat on MacFarlane’s loan has caused the developer pain. 

    At the end of September, MacFarlane was only making about 70 percent of the amount needed to cover monthly debt payments on the loan. 

    It’s not just the syndicators in the Sun Belt, or rent-stabilized owners in New York City and San Francisco. MacFarlane is one of many landlords in Los Angeles that are struggling to make debt payments, in light of rising interest rates and property expenses.

    Since November, about $580 million in commercial mortgage-backed securities debt tied to apartment buildings in the city of L.A. has been watchlisted for having low debt service coverage ratios, according to data from ratings agency Morningstar Credit. 

    The watchlisted debt makes up about 10 percent of all securitized loans tied to apartment buildings in the city of L.A. 

    Only one securitized loan tied to an L.A. multifamily building is currently delinquent and none have entered special servicing. However, a number of lenders have already taken over multifamily projects or sued over delinquent loans. 

    MacFarlane’s loan from Starwood, about $46 million of which was packaged into a commercial loan obligation securities pool, has been on servicer watchlists since 2022.

    MacFarlane is not delinquent on the loan and not in default, according to Morningstar. The property is currently 90 percent occupied, according to a representative for MacFarlane.

    Starwood did not respond to a request for comment before publication.

    It’s not just rising debt costs. At Park Fifth, located at 427 West 5th Street in Los Angeles, property taxes, insurance, payroll and utility costs have all increased, according to servicer notes cited by Morningstar, compared to the borrower’s projections in 2019. 

    Chasing delinquencies 

    A DSCR, or debt-service coverage ratio, is used to determine whether the properties are reeling in enough income to cover monthly debt payments — a metric less than 1 means the property is not making enough to pay off debt. 

    Though some lenders have been prone to granting extensions on troubled loans, or coming to workouts to forgive low DSCRs, others have shown less mercy. 

    In mid-January, Ladder Capital served Beverly Hills-based Greenbridge Investment Partners with a notice of default, records show. 

    Greenbridge, which got its footing buying up distressed properties, owed $13.1 million under loans tied to three properties in L.A. — 13001 Vanowen Street in North Hollywood, 21133 Saticoy Street in Canoga Park and 15042 Dickens Street in Sherman Oaks. 

    All three properties were built between the 1950s and 60s, meaning all are subject to rent control under the City of L.A.’s Rent Stabilization Ordinance. 

    Because of this, Greenbridge was not allowed to raise rents on the properties from 2020 through Feb. 1 of this year. 

    Starting on Feb. 1, landlords on rent stabilized units in the city can hike rents by 4 percent. 

    Days after the default notice, Ladder filed a lawsuit against Greenbridge’s LLCs that own the properties, asking the court to appoint a receiver to manage the apartment complexes, usually an alternative to foreclosure. Greenbridge did not respond to a request for comment.

    In December, Neil Shekhter, once the most prominent apartment owner on the Westside, lost about half of his portfolio. Three lenders — Madison Realty Capital, Hankey Capital and Lightstone Capital — took over 28 multifamily buildings and development sites through deeds in lieu of foreclosure. 

    Many of Shekhter’s loans were floating rate — when rates started to rise, so did his monthly debt payments. 

    Eviction issue

    When Geoff Palmer scored a $156 million loan on his 632-unit Medici complex in Downtown L.A., he had one large protection. The 10-year loan was fixed-rate and bought by Freddie Mac. 

    In 2022, when the Federal Reserve hiked rates, Palmer’s debt payments stayed unchanged at about $530,000 a month, according to Morningstar data. 

    Yet, the DSCR on the loan still fell to 0.98 in September, meaning income was a few thousand  dollars short of what was needed to service the debt. 

    The culprit, according to the loan’s servicer, was evictions. 

    “We had very high evictions which hurt occupancy numbers last year,” Palmer’s GH Palmer Associates told Wells Fargo, the servicer on the loan, according to Morningstar. “Higher than normal repair and maintenance on those units and legal expenses taking the tenants to court for judgment.” 

    The number of eviction notices soared 44 percent from February to March last year, and a further 38 percent from March to April, according to data from the L.A. City Controller’s Office. 

    After three years of L.A.’s city eviction moratorium, landlords were allowed to resume evictions in March 2023 for tenants that fell behind on rent, as long as the owed amount was higher than fair market rent, as defined by the U.S. Housing and Urban Development Department. 

    Palmer’s loan on Medici was not the only one of his loans that suffered dips in cash flows because of evictions. 

    On a $128.1 million loan tied to The Orsini, a 566-unit complex at 550 North Figueroa Street owned by Palmer, the servicer noted eviction expenses had soared in 2022, leading the DSCR on the loan to dip. 

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    Isabella Farr

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  • SVB Financial bonds sink to 31 cents on the dollar after failure of Silicon Valley Bank

    SVB Financial bonds sink to 31 cents on the dollar after failure of Silicon Valley Bank

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    Heavy trading in SVB Financial Group’s
    SIVB,

    debt pulled its BBB-rated 10-year bonds as low as 31 cents on the dollar on Friday after subsidiary Silicon Valley Bank was closed by regulators, marking the biggest bank failure since the financial crisis.

    The Santa Clara, Calif.–based financial-services company has been reeling in recent days, with both its stock and bond prices hit hard, after it on Thursday disclosed a $1.8 billion loss from a sale of about $21 billion in securities.

    Its bond prices lost further ground Friday after the California Department of Financial Protection and Innovation closed Silicon Valley Bank, placing the Federal Deposit Insurance Corp. in control of its assets.

    Silicon Valley Bank had an estimated $209 billion in total assets and about $175.4 billion in deposits as of Dec. 31, according to the FDIC.

    SVB Financial’s 4.57% bonds due April 2023 traded as low as 31 cents on the dollar on Friday in heavy trading, according to BondCliq. Since the low, the debt traded up to 38.50 cents. A week ago it was fetching 90 cents. Prices on U.S. corporate bonds below 70 cents on the dollar are broadly considered distressed.

    Worries about distress at Silicon Valley Bank, and potential risks in the broader distress in the banking system, have weighed on shares and the debt of financial companies.

    Bonds in the financial sector were broadly under pressure Friday, including debt issued by Bank of America Corp.
    BAC,
    -0.97%    ,
    JPMorgan Chase and Co.
    JPM,
    +2.70%    ,
    Goldman Sachs Group Inc.
    GS,
    -3.69%    ,
    Morgan Stanley
    MS,
    -1.56%
    and other major banks, according to BondCliq.

    Shares of the Invesco KBW Bank ETF
    KBWB,
    -3.26%
    were down 16% on the week through midday Friday, with some investors expressing concern about potential cracks in the financial system following a year of aggressive interest-rate hikes by the Federal Reserve.

     Barclays analysts said Friday that they viewed the collapse of Silicon Valley Bank as an “isolated event, but that it still “raises risks of broader distress within the banking system” that could throw cold water on talk of a Fed interest-rate hike in March of 50 basis points vs. 25 basis points.

    “Indeed, the possibility of capital losses at other institutions cannot be completely dismissed, with rising policy rates raising banks’ funding costs, more elevated longer-term rates exerting pressure on asset valuations, and potential loan losses related to idiosyncratic credit exposures.”

    Shares of SBV Financial were halted Friday, but they are down about 54% on the year, according to FactSet. The S&P 500 index
    SPX,
    -1.11%
    was down about 1.2% Friday afternoon, while the Dow Jones Industrial Average
    DJIA,
    -0.82%
    fell 0.8% and the Nasdaq Composite
    COMP,
    -1.47%
    was 1.7% lower.

    Deep Dive: 10 banks that may face trouble in the wake of the SVB Financial Group debacle

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