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A $400M CMBS loan on Brookfield Properties' Bank of America Plaza in Los Angeles has moved to special servicing. The loan is set to mature in September.
The loan has performed since origination and the net cash flow at 333 South Hope St. over the last full year was slightly above underwritten levels, according to a report from Morningstar Credit.
But the 1.4M SF building's occupancy has dropped below 80% and is expected to drop below 70% after the end of the year, when the property's third-largest tenant, legal services firm Sheppard Mullin Richter, vacates following the expiration of their lease, Morningstar reported.
Loan agreements often include requirements about the level of occupancy a property must maintain.
"The transfer to special servicing enables us to begin discussions about a path forward for the loan and building," a Brookfield Properties spokesperson told Bisnow in an email.
Though special servicing is often a sign that a property is on the road to distress, it can also be a step in a healthier direction for a troubled loan. A special servicer can use a variety of strategies to ensure a positive outcome for lenders and borrowers.
The lenders, Wells Fargo, Goldman Sachs, Morgan Stanley and Citigroup, were anticipating losses on the debt in June 2023. Fitch Ratings reported at the time that the loan was a “heightened maturity default risk”, The Real Deal reported at the time.
Brookfield has had trouble with its Downtown LA office properties over the last few years, defaulting on loans worth more than $700M on two towers in early 2023. Both properties, The Gas Company and EY Plaza, are now under the control of receivers.
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