Brookfield Is Handing Back a 95%-Full Tower. Other Owners Are Selling First.

Brookfield is walking away from the Beaudry, a $600 million, 785-unit apartment tower in downtown Los Angeles that opened in 2023 and is about 95% leased. Refinancing its roughly $360 million loan at today’s rates would have cost tens of millions of dollars more, so Brookfield is handing the tower back.

A wave of these debt bombs is coming in CRE. Apartment landlords have about $1.8 trillion of debt coming due over the next decade, almost half of it between now and 2028, the Wall Street Journal reports. Multifamily delinquency in commercial mortgage-backed securities has reached 7%, up from 1% in October 2023, according to Morgan Stanley.

DealGround data shows owners with loans coming due are planning ahead and testing the market early.

Who’s listing

• Apartments with debt coming due list at twice the rate. Apartment buildings with a $1 million-plus loan due by the end of 2028 are about twice as likely to have been listed for sale this year as those whose loans run past 2028.
• Industrial owners are listing early too. Industrial buildings with a loan due by 2028 are about 50% more likely to have been listed this year than those with later maturities.
• Retail, less so. Retail buildings with a loan due by 2028 are about 17% more likely to have been listed.
• Office owners aren’t selling. Office buildings with a loan coming due are no more likely to have been listed this year than other office buildings.
• The cheap debt is in every property type. About a quarter of the $1 million-plus loans due by 2028 carry rates of 4% or less, whether the building is apartments, retail, office or industrial.

Beaudry isn’t alone

• Santa Monica, Calif. The lender on The Park Santa Monica, a 249-unit luxury complex, has scheduled a Dec. 3 foreclosure auction, claiming $513.7 million owed on a 2021 loan.
• Chatsworth, Calif. A 354-unit workforce-housing complex sold for $101.75 million in late 2021 with a $98.2 million loan at 3.05%, due Nov. 22. It came to market in August at $105 million, a 5.89% cap rate on $6.3 million of net operating income. At 6%, interest alone on that loan would be about $5.9 million a year, nearly all of that income.
• Atlanta. A 2017-built apartment property near Chastain Park is encumbered by a $49.3 million TIAA loan from 2020 at 2.8%, due Jan. 1. It came to market in September.
• Modesto, Calif. A 100-unit complex built in 2020 sold for $29.5 million in April 2021 with a $22.1 million Walker & Dunlop loan at 3%. The loan isn’t due until May 2028, and the property came to market this summer with no asking price.

What happens next

• More owners will sell before the maturity date. An owner who can’t refinance at today’s rates has to put in more equity, sell, or hand back the keys, as Brookfield is doing.
• Loan sales and auctions come next. When an owner walks away, the lender sells the loan, as the Beaudry’s lender is doing, or forecloses, as The Park Santa Monica’s lender plans to on Dec. 3. Whoever buys the loan or wins the auction can end up owning the building.

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