Before we get into the situation, please note the issue discussed here is not EY’s fault. Rather, the office tower bearing the firm’s name at 725 South Figueroa Street in downtown Los Angeles has entered receivership after asset management company Brookfield stopped making payments on its debt in April. Commercial real estate firm Colliers has taken control of the 41 stories high, 968,184 square-foot office tower and issued a news release:
Colliers is pleased to announce it has been awarded the exclusive leasing and property management assignment of Downtown Los Angeles’ EY Plaza, formerly Ernst & Young Plaza, at 725 S. Figueroa Street. The firm was retained by Gregg Williams of Trident Pacific Real Estate, who has been appointed Receiver. Serving as lead advisor for the receivership estate, Sean Fulp, Head of Office Capital Markets, U.S. Southwest, is tasked with ensuring EY Plaza’s value is preserved despite the turbulent market conditions.
Check out this pettiness:
The assignment marks the firm’s second high-profile office tower takeover in under a month, an endeavor Ian M. Gilbert, who joined Colliers from Brookfield in April, is ideally suited to take on. “The opportunity to lease EY Plaza is one we are immensely proud of,” he said. “Few office assets of this caliber exist in Downtown Los Angeles, and its rich history, open-air design, and highly-desirable walkability will prove advantageous for today’s tenant expectations.” [Gilbert has transacted over 1,000 deals throughout his 15-year career, according to Colliers’ news release announcing his hiring in April]
SoCal real estate news site The Registry said Brookfield has a $275 million commercial mortgage-backed security loan for EY Plaza and a mezzanine loan worth $30 million.
Brookfield’s investors were warned months ago that the company was struggling to pay debts. The Registry:
Earlier this year, Brookfield issued a warning to investors regarding its ability to meet its debt payments. The firm acknowledged that the cash generated from the building would not be sufficient to cover impending debt obligations, leasing costs, and capital expenditures tied to EY Plaza.
The growing prevalence of remote work, which influenced increased vacancy rates, presented a dual challenge for Brookfield. Coupled with rising interest rates, the firm faced mounting debt payments not only for EY Plaza but for many of its other properties. As Brookfield held a considerable number of floating-rate loans, the rising rates had a detrimental impact. Financial filings indicate that the interest rate on the EY Plaza loan stood at Libor plus 2.86 percent. In March, with Libor hovering around 4.55 percent, Brookfield reached its rate cap of 6.02 percent.
Occupancy has been on a downward slide since 2020 and leasing “has not caught up to prepandemic levels as businesses consider how to best implement return-to-office plans and transition to hybrid or remote work policies,” Brookfield said in its 2022 annual report. With 30% available for rent at the end on 2022, downtown Los Angeles has the highest amount of vacant office space of any major US market.
It’s the second Los Angeles building Brookfield lost this year, with more LA offices at risk of foreclosure.
Accounting to this October 2020 The Real Deal breakdown of rents at EY Plaza, EY occupies 121,000 square feet in the building and pays $28.47 per square foot (building average is $29.56 per square foot).
“EY Plaza is one of the best office buildings in all of Los Angeles, and its value is worth protecting,” said Colliers’ Fulp. “We will not sit back and wait for the market to determine its fate. The building is now very well capitalized, and we have a highly skilled team of management and transaction professionals to ensure it remains one of the premier options for tenants in downtown LA.”