Onni Group, a Vancouver, Canada-based real estate developer, is encountering difficulties related to its substantial $408 million loan tied to the Wilshire Courtyard office complex situated in Los Angeles’ Miracle Mile. Recent findings indicate that the commercial mortgage-backed securities (CMBS) loan obtained from Natixis has been referred to special servicing, preceding its anticipated expiration in July, according to a report in The Real Deal. The data provided by Trepp and Morningstar Credit Information and Analytics shed light on this development, while Onni Group refrained from responding to inquiries seeking comment.
According to Morningstar data, Onni has the option to extend the loan by an additional year. However, fulfilling this option necessitates the building’s income to exceed 1.1 times the monthly debt service. Unfortunately, Onni is presently unable to meet this requirement, thereby triggering the need for special servicing.
In 2019, Onni acquired the one million-square-foot office complex located at 5750 Wilshire Boulevard for a substantial sum of $630 million; the seller was Tishman Speyer. Shortly thereafter, the company secured WeWork as an anchor tenant, occupying approximately 32 percent of the available space. This deal was lauded as a triumph for Onni, given WeWork’s valuation of $47 billion at the time.
During that same year, Onni engaged in negotiations to obtain the CMBS loan, along with a $69.4 million mezzanine loan from Brookfield, as reported by DBRS Morningstar.
However, unfortunate circumstances overshadowed these developments. WeWork’s co-founder, Adam Neumann, was removed from his position as CEO a few months later following a failed attempt to execute the company’s initial public offering. By 2022, WeWork had vacated the entire 335,000-square-foot lease, leaving Onni facing significant setbacks.
By the end of 2022, the office complex experienced a vacancy rate of approximately 46 percent, and the company reported a net cash flow of $20 million, down from the initial $30.2 million when the CMBS loan was issued, according to Morningstar data. Since then, tenancy at the property, and consequently the income generated, has been volatile.
In January, Sony Pictures signed a substantial lease agreement, securing 225,000 square feet at the building. This development provided a boost to the property and seemed promising for Onni Group. However, just three months later, the loan’s special servicer disclosed that two major tenants, Media Brands Worldwide and Sky Dance Media, were expected to vacate the premises once their respective leases expire later this year. These two tenants collectively occupied 165,000 square feet of space.
Unlike numerous owners of office properties burdened with floating rate debt, Onni Group has experienced less adversity stemming from rising interest rates. This favorable position can be attributed to the company’s strategic move to purchase a rate cap when securing the loan in 2019.
Based on available loan data, Onni has been making interest payments at a rate of 3.75 percent since July 2022. This translates to approximately $1.3 million in monthly interest payments or $15.6 million annually.
