Brookfield’s One Pierrepont Plaza debt goes to special servicing

Brookfield’s office woes have surfaced in Brooklyn.

Brookfield Property Partners, the real estate arm of the Canadian conglomerate, failed to pay off a $148 million loan backed in part by One Pierrepont Plaza in Brooklyn Heights when it came due last month.

The securitized debt, which is also secured by a mixed-use building in Pittsburgh, is headed to special servicing, according to Trepp.

The transfer comes after One Pierrepont landed the borough’s biggest lease of 2023, with the MTA signing for 192,000 square feet or about a quarter of the 19-story building.

Brookfield Asset Management, another arm of the labyrinthine company, is in talks with a special servicer about an expired $130 million mortgage tied to another Downtown Brooklyn office building, 15 MetroTech Center. Brookfield told Bloomberg in June it was hopeful a deal could be reached.

A Brookfield spokesperson said the firm is also in negotiations with the servicer for One Pierrepont Plaza’s loan to modify or extend it.

The $148 million debt — originally a $402 million loan backed by seven office properties— was first watchlisted in August 2020, according to Morningstar. Forest City Realty Trust took out the debt; in 2018 Brookfield acquired Forest City, which built MetroTech and One Pierrepont.

Brookfield has been chipping away at the balance. The two-year, floating-rate loan was set to come due in December 2020. Brookfield staved off that maturity date thrice, exercising each of its extension options. Meanwhile, it paid off the balance tied to five of the properties — $232 million — and kicked in $23 million.

Those buildings included Johns Hopkins Life Sciences in Baltimore and UPenn Life Sciences in Philadelphia, a Harlem office building and two office properties in Richmond, Virginia.

But the Federal Reserve’s rate hikes soon ate away at revenues. The loan’s debt service coverage ratio, which measures cash flow against debt service, had slipped to 1.57 — still a healthy number — at the end of 2022, according to the most recent Morningstar data.

Brookfield also defaulted on more than $1 billion in loans tied to office properties in Downtown Los Angeles last year. The owner later walked away from a dozen suburban office assets in Washington, D.C., area and quit paying debt service on $886 million in loans backed by 10 retail properties.

The company has said those properties represent a tiny fraction of its holdings. Brookfield Property Partners holds $68.8 billion in debt, the most of any real estate company, according to data from Companies Market Cap compiled by BusinessFinancing.co.uk.

However, in October, S&P Global Ratings said it was considering cutting Brookfield Property Partners’ credit rating to junk status because of the “substantial” debt it has coming due, high interest rates and a drop in valuations, Bloomberg reported.

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