Brookfield defaults on $161M loan tied to suburban D.C. offices, says broader portfolio remains healthy

Borrower said that "trophy" assets are still in high demand globally.

Brookfield defaults on $161M loan tied to suburban D.C. offices, says broader portfolio remains healthy

A major developer from Greater Washington defaulted on $161 million in loan debt connected to its suburban office assets.

On March 14, the mortgage, which was partially backed up by seven Brookfield Properties Class B office buildings in Rockville with a majority, was transferred to an independent servicer. According to a report from a loan servicer, the transfer was due to'monetary default'. Bloomberg was the first to report the default.

Covid's influence on work and travel behavior has been well documented, especially in the D.C. area. Brookfield has not said much but it has downplayed its role in the default of commercial mortgage-backed securities.

In an email, a Brookfield spokesperson informed the Washington Business Journal that 'the pandemic' has caused challenges for traditional offices in certain parts of the US Market'. However, this only applies to 'a small percentage' (or a tiny portion) of the portfolio of the company. Brookfield owns dozens of properties throughout the region. These include large mixed-use developments in D.C.’s The Yards, and Reston’s Halley Rise.

The spokesperson stated that '[ninety five percent] of our buildings are trophy and class-A properties, which continue to benefit from the flight towards quality and see high demand worldwide'. She was referring to the trend of tenants moving away from older properties to newer constructions with better amenities, even though their leasing footprints may shrink.

Brookfield purchased 11 properties in Northern Virginia and suburban Maryland, which Brookfield acquired between 2016 and 2017. Other properties were located in Florida and Georgia. Brookfield refinanced its portfolio in 2018 with an initial balance $223 million. It then sold several properties, including four near Washington, D.C., using the proceeds to reduce the mortgage balance on the portfolio to $161 millions as of this month.

The remaining Brookfield properties in Greater Washington suburbs, purchased in total for almost $263 million, are more than 1.1 millions square feet of office space from the 1970s and 1980s. Five of the buildings are located in Rockville. One is in Silver Spring, and one is in Arlington.

According to a loan servicer note, the special servicer KeyBank National Association 'is working closely with the Borrower in order to complete a Pre-Negotiation agreement and determine the next steps'. The original loan balance was $223.4 millions, which was originated by Morgan Stanley Mortgage Capital Holding. However, it was reduced because of three unscheduled payment that corresponded with the four sales -- $8.17 in July 2020; $34.5 in January 2022; and $19.3 in October 2022.