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**What Brookfield's Default Has To Do With You**

What Brookfield's Default Has To Do With You

_Authored by MN Gordon via EconomicPrism.com,_ (https://economicprism.com/what-brookfields-default-has-to-do-with-you/)

**Over more than two decades we worked off and on in Downtown Los Angeles.** We had a client for several years at 555 West 5th Street, in the tower at the base of Bunker Hill. We’d meet several times a week. Always in the morning.

Sometimes he would boast about his property in Coeur d’Alene, Idaho, and how he’d one day leave LA. Other times he’d deliver us a wire brushing for events beyond our control. One time he accused us of ‘smash and grab’ tactics for merely requesting payment of a past due invoice for contracted work that had already been delivered.

**After these inspiring encounters we’d hike by the collection of derelicts and dope smokers sprawled out on the wall in front of the Central Library.** This was as we made our way back to our office at the Wedbush Center on Wilshire Boulevard near Figueroa Street.

On the corner in front of the 7-Eleven a clown appeared one day. He had oversized shoes, a rainbow wig, face paint – the whole costume. All day every day, rain or shine, he was there, jumping around, waving at cars and buses, and fist bumping people walking by. Then, after about nine months, he was gone. We never saw or heard of him again.

One spring day in 2016, amongst a mob of pedestrians, we gazed up at the skeleton frame of what would become the Wilshire Grand Center. For the first time in several years the buzz and hum of diligent building activity was eerily silent. Construction efforts had been shut down for the day.

**Sadly, less than 24 hours earlier a distraught electrician had taken a swan dive off the 53rd floor.** The man’s death prompted an immediate work stoppage and evacuation of the tower.

> _“It sounded like a bag of cement fell off the edge of the building,”_remarked (http://www.latimes.com/local/lanow/la-me-ln-construction-worker-falls-from-l-a-high-rise-hits-cars-dies-20160317-story.html) one observer.

Naturally, the sound of impact was far too grim for us to contemplate. We didn’t have much of an appetite that day.

But out of habit, we stopped at the food court – FIGat7th – and ate something called a moon bowl. There, in the shadow of the tower at 777 South Figueroa Street, **we wondered how time must have simultaneously slowed down and sped up for the jumper as he descended toward the ground.**

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**Brookfield Defaults Again**

This trip down memory lane was wandered with intent and purpose. Because this week Bloomberg reported (https://www.bloomberg.com/news/articles/2023-04-17/brookfield-defaults-on-161-million-debt-for-office-buildings) that **Brookfield Corporation, one of the largest commercial real estate companies in the world, has defaulted on $161.4 million of office building mortgages.**

These office buildings are mostly in Washington, DC. However, **this Brookfield default comes just two months after its much larger default of $784 million in mortgages for two office towers in Los Angeles.** These include our old haunts at 555 West 5th Street and 777 South Figueroa Street.

The reasons behind the defaults are generally straightforward.

**The double whammy of higher vacancy rates post-Covid and higher interest rates have turned these buildings from profit generating ventures into huge gaping money pits.**

Here are the grim particulars from Bloomberg:

> _“In the Washington metro area, office property values have plunged 36 percent through March from a year earlier, on par with declines nationwide, according to the Green Street index._

> _“Among the dozen buildings in the Brookfield portfolio with the $161.4 million debt, occupancy rates averaged 52 percent in 2022, down from 79 percent in 2018 when the debt was underwritten, according to the report. Monthly payments on the mortgage’s floating-rate debt jumped to about $880,000 in April from just over $300,000 a year earlier as the Federal Reserve raised interest rates.”_

In short, as rental income declined due to higher vacancy rates and monthly mortgage payments jumped over 190 percent, **throwing good money after bad became untenable for Brookfield.** Default was the better option.

**Fake Insurance**

**The fact is there’s simply too much unused office space. This is not a situation that will magically change.**

Maybe a savvy developer will come in and complete an office-to-residential conversion. But that’s not Brookfield’s game. And whoever does it will only take the risk at a much lower price and with much better terms.

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