UPDATED Sep. 28, 12:11 p.m.: Brookfield Property Partners has secured a $305 million refinancing package for Ernst & Young Plaza, a 41-story, 940,000-square-foot office tower in Downtown Los Angeles.
The $275 million senior loan and $30 million in mezzanine debt were both originated by Morgan Stanley and Wells Fargo last week. Details of the deal were disclosed in a pre-sale report from Kroll Bond Rating Agency for the single-borrower CMBS deal named BFLD 2020-EYP, whose collateral is the senior loan.
The new debt will replace a $265 million balance-sheet loan previously provided by Wells Fargo, and return $15 million in equity to the borrower “for working capital purposes,” according to the report. Loan proceeds will also be used to establish a $15.1 million reserve for tenant improvements and leasing costs and a $6.3 million reserve for outstanding free rent.
Brookfield fully controls and owns a 47.5-percent stake in the borrowing entity. The remaining ownership is evenly split between two unnamed sovereign wealth funds and a pension fund.
The financing carries an initial term of two years, with three one-year extension options. The interest rate on the senior debt is LIBOR plus 2.86 percent, while interest on the mezzanine debt is LIBOR plus 6.85 percent.
A spokesperson for Brookfield said the firm secured financing for the tower after it recently completed a lease renewal with Pillsbury law firm “and secured new long term leases with Clune Construction and California Fair Plan.”
The tower’s eponymous Big Four accounting firm, Ernst & Young, is the largest tenant at the property with more than 120,000 square feet. The tenant that pays the most base rent, meanwhile, is the U.S. government — specifically the Secret Service, which has 94,000 square feet at the property.
The property is now 78.4 percent leased to 43 tenants, down from an occupancy rate of 91 percent in 2018. The decline was mainly due to the departure of one large tenant, Lockton Insurance, in 2019.
Ernst & Young is also one of the largest tenants at Brookfield’s newly-opened office tower on the East Coast, One Manhattan West, where it has more than 636,000 square feet. That property recently received a $1.8 billion refinancing itself, including a $1.5 billion single-borrower CMBS deal that attracted massive investor interest.
Updated to include comment from Brookfield Properties.