Morgan Stanley, Wells Fargo Behind $305M Loan for Brookfield’s LA Office
The 41-story Ernst & Young Plaza tower spans 940,000 square feet in downtown
By Greg Cornfield September 29, 2020 4:00 pm
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In the darkness of an economic downturn and amid an office-killing work-from-home phenomenon, a sign of hope has emerged in the form of institutional confidence in Downtown Los Angeles.
Morgan Stanley (MS) and Wells Fargo (WFC) provided $305 million in refinancing for Brookfield (BN) Property Partners’ 41-story Ernst & Young Plaza tower at 725 South Figueroa Street, The Real Deal reported. The term for the loan on the 940,000-square-foot office is two years, and it comes with three one-year extension opportunities.
Brookfield is the largest office landlord in Downtown L.A.
The financing replaces a $265 million loan from Wells Fargo in 2018. The tower is 78.4 percent leased to 43 tenants. The building is named after its largest tenant, accounting firm Ernst & Young, which is signed to more than 120,000 square feet. The U.S. Secret Service is another tenant, signed to 94,000 square feet.
About $15.1 million of the proceeds from the CMBS deal will go to tenant improvements and leasing costs, and $6.3 million will go to outstanding free rent.
The interest rate on the $275 million senior debt is LIBOR plus 2.86 percent, while interest on the $30 million mezzanine debt is LIBOR plus 6.85 percent, according to TRD. Brookfield owns a 47.5 percent majority stake in the borrowing entity, while the remaining ownership is split between three other funds.
Office rents in L.A. have been falling between 5 to 10 percent amid the pandemic, Commercial Observer reported this month. Experts say the downtown area will continue to face challenges with a nearly 20 percent vacancy rate.
The vote of confidence in office property comes as Brookfield feels pandemic pains with its retail arm. Last week, it was revealed that Brookfield plans to lay off about 20 percent of its retail staff, and earlier this month, CO reported that major retail closures were putting serious pressure on the firm’s $895 million CMBS loans.
Brookfield’s office portfolio in L.A. has been more stable. Just before the pandemic took hold, Marcum LLP announced it was moving its headquarters from Century City to Brookfield’s 52-story office property at 777 South Figueroa Street.
Meanwhile, Morgan Stanley and Wells Fargo have major commitments around the region. In May, Morgan Stanley joined Goldman Sachs in providing $550 million in debt for the 2.5 million-square-foot office complex City National Plaza. And, this time last year, Wells Fargo provided $194.9 million in financing for two offices in Beverly Hills and Norwalk.
