Brookfield’s Gas Company Tower, one of the investment management firm’s core assets in Downtown L.A., has been placed into receivership by Citi Real Estate Funding and Morgan Stanley. The lenders filed a lawsuit last week asking the court to appoint a receiver on the property, an alternative to bankruptcy, according to L.A. Superior Court documents. Brookfield defaulted on two senior loans attached to the property in February, one for $210 million and another for $140 million.
The receiver, Gregg Williams of Trident Real Estate Group, has the authority to “market, advertise, promote, and negotiate the sale of the property,” according to a court filing. Williams has already tapped a Colliers team led by Ian Gilbert, who used to work at Brookfield, to manage and help lease up the property. If successful, any proceeds of the sale would go to pay creditors. With a receivership, a court appoints a third-party to help make creditors whole, without having to file for bankruptcy. Receivers can also restructure and refinance debt to resolve delinquent loans.
Brookfield defaulted on the loans for two reasons, according to court documents. First, it failed to pay off the loan in full by the maturity date of Feb. 9, and second it failed to pay an advance of $3.6 million in property taxes by April 10. Under the loan agreement, Brookfield was required to pay 3 percent in additional interest if it defaulted. The loans held an interest rate of Libor plus 1.89 percent, according to filings with the Securities & Exchange Commission.
Over the last year, Brookfield has struggled with rising debt payments on the building, coupled with stagnant lease activity. At the end of September, the Gas Company Tower was about 73 percent leased — no change from the prior quarter, according to SEC filings. The company reported $27.3 million in yearly base rent at the tower in December, or about $2.3 million a month. That wasn’t enough to cover the new debt service payments, which shot up as interest rates soared in the second half of 2022. Combined with the monthly interest payments on mezzanine loans connected to the building, the total debt service in December came out to about $2.7 million — more than double its payments just a few months prior.
Despite this setback, a new opportunity has arisen with the opening of Beaudry, one of the City’s tallest residential buildings. The 64-story building boasts 785 residential units and stands on a long-vacant property at 960 W. 7th Street. Beaudry was designed by Marmol Radziner and features a mid-century modern inspired, indoor-outdoor aesthetic.
While Brookfield faces battles with its Downtown L.A. portfolio, including the recent write-down of the value of its 45-story office tower at 355 South Grand Avenue, the opening of Beaudry provides a new opportunity for the company. In addition to Beaudry, Brookfield is also planning to construct a 34-story residential building adjacent to Bank of America Plaza, and has Adidas and Forever 21 as office tenants at the revamped California Market Center in the Fashion District.
Overall, while Brookfield may have experienced a setback with the receivership of the Gas Company Tower, the opening of Beaudry and other future developments offer new opportunities for the company to thrive in the Downtown L.A. market.