It was the project slated to shift the center of gravity in Downtown L.A. but the financial underpinnings of the Bloc, a 1.1 million-square-foot office and retail redevelopment by the Ratkovich Company at 700 S. Flower Street, are now coming under scrutiny from lenders.
Indeed, a $121.8 million CMBS loan attached to the high-profile project has been transferred to special servicer CWCapital Asset Management because of concerns that Ratkovich and its partners, National Real Estate Advisors and Blue Vista Capital, won’t be able to pay the balance when the loan matures in April, analytics firm Trepp told The Real Deal.
Meanwhile, Ratkovich is actively seeking capital to refinance the loan in a bid to avoid default, sources said.
The news of the potential default comes amid rising speculation about when the retail at the Bloc will finally make its long-awaited debut. The project, which has long served the narrative of Downtown L.A.’s retail renaissance and as a boon for retail financing in the area, was originally slated to open by the end of 2015 but the opening has been delayed several times since and is now slated for summer 2016.
The project hasn’t generated enough cash flow to keep its loan current since 2013.
“A new, more favorable loan replacing the existing loan is in the process of being documented and is projected to close prior to the maturity date of the existing indebtedness,” a spokesperson for the company told The Real Deal. “However, as a precaution, we requested a short-term extension of the existing loan to accommodate any potential delay in closing the new loan. This request triggered the engagement of a special servicer to assist with the extension.”
The sponsors’ cash flow problems appear to arise from office space vacancy in the 708,000-square-foot tower. The 32-story property’s office component is currently 52 percent leased to tenants including architecture firms DLR Group and Studio One Eleven, while the retail portion is 70 percent leased and 4 percent signed with letters of intent, according to documents obtained by The Real Deal. Macy’s, Wingtip, Starbucks Evenings, Popbar and Alamo Drafthouse Cinema were tenants announced early on as among the retail line-up.
The only tenant currently open is Macy’s.
Ratkovich bought the 1970s-era mall, office and hotel complex, on a block bounded by Seventh, Eighth, Hope and Flower streets, for $241 million in 2012 and quickly plowed at least $160 million into transforming it into a modern mixed-use shopping complex, including removing the roof to provide an open-air food court and shopping area.
“It’s larger than anything we have ever done before,” Ratkovich told the LA Times of the project in 2013, “and a huge amount of responsibility.”