As the Fed hiked rates, commercial real estate borrowers suffered.
A wave of borrowers defaulted on loans tied to commercial properties across L.A. and Orange County this year, as they struggled to make mortgage payments tied to offices, construction projects and malls.
While some investors were fortunate enough to score extensions on loans, kicking the can down the road in the hope that interest rates will dip in the future, others decided to hand back the keys and move on.
In Los Angeles, Brookfield was a repeat offender, defaulting on loans tied to three office towers in Downtown L.A. Two of those towers are now in receivership, an alternative to bankruptcy.
Here were the largest loan defaults tied to Los Angeles and Orange County commercial properties in 2023, according to a TRD analysis and data from Morningstar Credit Analytics and Trepp.
1. Brookfield Properties | Gas Company Tower, EY Plaza, 777 Tower | $1.1 billion
Brookfield Properties’ DTLA fund defaulted on about $1.1 billion worth of debt tied to three towers in Downtown L.A. between February and May, after rising rates hiked monthly debt payments on the towers.
At the Gas Company Tower, at 555 West 5th Street, the firm defaulted on $465 million in loans, originated by Citi Real Estate Funding and Morgan Stanley. Some of that debt was packaged into commercial mortgage-backed securities pools.
Brookfield also defaulted on $294 million in loans tied to the 777 Tower at 777 South Figueroa Street, and missed payments on a $275 million loan tied to the 41-story EY Plaza.
The CMBS bondholders on both the Gas Company Tower and EY Plaza sued separately, seeking to place both towers into separate receiverships. Gregg Williams at Trident Real Estate was appointed as a receiver and is now working to lease the properties up.
2. TA Partners | 18831 Von Karman Avenue, Irvine | $197 million
In October, TA Partners defaulted on almost $200 million in loans tied to two apartment projects in Irvine, less than two years after the debt was handed out. The firm owed about $11 million under the two loans as of Oct. 1.
TA Partners planned to build the two complexes at 18831 Von Karman Avenue and 17422 Derian Avenue, totaling 658 units.
Mack Real Estate Credit Strategies provided two senior loans totaling $197 million in 2022 as part of a larger debt package. Under state rules, Mack can schedule a foreclosure no earlier than Jan. 4.
3. Unibail-Rodamco-Westfield | Valencia Town Center | $195 million
Kicking off 2023, Unibail-Rodamco-Westfield missed a deadline to pay off a $195 million loan connected to the Valencia Town Center mall in Santa Clarita. The CMBS loan was sent to special servicing in October 2022, but Unibail officially went delinquent in January.
Valencia Town Center, the 1.1 million-square-foot mall at 24201 West Valencia Boulevard was about 82 percent occupied in the first half of 2022, with anchors including Macy’s and JCPenney.
The CMBS investors got reprieve in September, when Dallas-based Centennial Partners came in and paid $199 million for the mall, almost at par with the loan. The firm is planning to redevelop the 53-acre shopping center into a mixed-use development with homes, offices and retail.
4. Walton Street, Greenlaw | 1 City Boulevard West, Orange | $63 million
In November, Walton Street Capital and Greenlaw Partners fell behind on a $62.7 million loan tied to 1 City Boulevard West, a 350,000-square-foot office building in the city of Orange in Orange County.
TPG RE Finance Trust originated the loan in 2019 and packaged it into a collateralized loan obligation, or CLO. The floating-rate loan is tied to one-month Libor, a benchmark interest rate, but has a rate cap of 5.55 percent.
The building has been empty and entirely available for lease since at least February 2022, according to LoopNet listings.
Since the delinquency, the loan has been sent to special servicing, according to Morningstar and Trepp.