LA, OC see $30B in CMBS loans due this year

Brookfield, Blackstone among heavily exposed lenders

2121 Avenue of the Stars and 555 West 5th Street
2121 Avenue of the Stars and 555 West 5th Street (Brookfield Properties, Irvine Company)

If you thought the roughly $10 billion in maturing CMBS debt tied to properties in Los Angeles and Orange counties last year was hefty, consider this year’s numbers.

About $30 billion worth of CMBS debt tied to almost 400 commercial properties in Los Angeles and Orange County will come due this year, according to data from DBRS Morningstar. Only about $3.5 billion of that has already been paid back.

FOr years, CMBS borrowers could mostly kick their problems down the road by working with lenders on extensions and forbearance agreements. But, as rising interest rates have put downward pressure on asset prices and skyrocketed refinancing costs, these sorts of resolutions are likely to slow, according to Fitch.

“Higher interest rates, persistent inflation and weak economic growth [are expected to] contribute to more maturity defaults” in 2023, Fitch Ratings said in a November report.

Blackstone is the borrower behind more than $15 billion worth of L.A. and O.C. commercial debt — holding ten of the fifteen largest loans — that is set to expire by the end of this year.

The largest such CMBS loan — from Blackstone and Starwood Capital for $4.65 billion — was used to acquire budget hotel chain Extended Stay America.

About 15 percent of the 560 Extended Stay America properties are located in California — with 32, or 6 percent, in Los Angeles and Orange counties.

None of Blackstone’s CMBS loans maturing this year have been placed into special servicing — a workout mechanism that indicates a possibility of default. However, at least four deals have been placed on DBRS Morningstar’s watchlist, as the maturity dates near.

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Nearly a fifth of the roughly 250 L.A. and O.C.-linked loans maturing this year have been placed on the watchlist.

In most cases, Blackstone has extension options, which allow the firm to push out the maturities and delay complications. But for many borrowers, that is no longer an option.

Take Brookfield, whose $350 million loan on the Gas Company Tower in Downtown L.A. is coming due next month. Brookfield no longer has extension options on the two-year loan, according to DBRS Morningstar data.

Brookfield scored a $465 million refinancing package from Citi Real Estate Funding and Morgan Stanley on the 54-story tower in 2021 — a deal that included a $115 million mezzanine loan.

The loan on the Gas Company Tower is one of 48 office CMBS deals maturing this year. Another is a $194 million loan on the Fox Plaza at 2121 Avenue of the Stars in Century City, owned by the Irvine Company, which is due in May.

Fitch Ratings expects the delinquency rate on CMBS loans to increase to up to 4.5 percent by the end of this year, up from 1.89 percent in October 2022. That’s still lower than a 7.15 percent delinquency rate reported by Trepp in May 2020, which was largely driven by defaults in the hotel sector.

CMBS maturities are also piling up in New York. More than $16 billion in loans secured by New York City commercial properties are maturing in 2023, about 30 percent more than last year’s total.

Only three L.A. and O.C.-linked CMBS loans maturing this year have gone into special servicing, where a third-party will try and work out the loan after a default.

The largest was Unibail-Rodamco-Westfield’s $195 million loan from UBS and Barclays on its 1.1-million-square-foot Valencia Town Center shopping mall that went into special servicing last year. The mall company missed its deadline to pay off the loan in full earlier this month. The other two were for retail properties in Anaheim and Palmdale.

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