The rise of remote and hybrid work has led to a surge in vacancies and a decline in property values, causing some landlords to default on debt as borrowing costs continue to soar. A fund tied to Brookfield Corporation, a global asset management firm, has defaulted on a $161.4 million mortgage for a string of office buildings, according to information from Bloomberg, which first reported on the story.
The 12 office buildings are primarily located in Washington, D.C. However, this is not the first time that Brookfield has faced issues with office properties. The firm has previously defaulted on $784 million of debt tied to two Los Angeles buildings, the Gas Company Tower and the 777 Tower. Another Brookfield office property in Los Angeles, which is located at 725 South Figueroa St., was also transferred to a special servicer and placed on watch by Kroll Bond Rating Agency, according to Bloomberg.
The challenges faced by Brookfield are not unique, however. Columbia Property Trust, for instance, recently defaulted on $1.7 billion in loans for properties located across the nation, including several properties in Northern California.
The COVID-19 pandemic has had a profound impact on the industry, with office properties in Los Angeles also being hit particularly hard. According to a first-quarter office market report from CBRE, Los Angeles continues to face a number of challenges, with more properties being added to the sublease market and vacancies also continuing to rise.
Quarter-over-quarter, the vacancy rate has risen by 0.8 percent,, and year-over-year, it has risen by 2.4 percent, according to CBRE. This makes for a current vacancy rate of 20 percent. The increase can be attributed to the return of large blocks of direct and sublease space to the market. The flexible work phenomenon has played a significant role in the shift in the market, with many firms opting to right-size their workspace needs. Additionally, sublease availability has increased and now accounts for 16.3 percent of overall availability in the market. During the course of the first quarter, sublease availability increased by over one million square feet, reaching an all-time high of 10.7 million square feet.
