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Brookfield’s Figueroa deal could impact Manulife US REIT’s proceeds from its disposition mandate

Goola Warden
·2-min read

A building near MUST's Figueroa is believed to have been sold at US$145 psf, compared to Figueroa's valuation of US$194.4 psf.

According to real estate website The Real Deal, Brookfield Properties is selling 777 South Figueroa Tower, formerly one of its trophy office towers in Downtown Los Angeles, for about half of the outstanding debt on the property.

According to Bloomberg, South Korea-based investment firm Consus Asset Management is in a deal to buy the 1 million-square-foot tower for about US$145 million. This translates into US$145 per square foot. The property is around 50% leased.

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Brookfield defaulted on US$319 million in loans tied to the 52-story tower in 2023 after rising interest rates squeezed profits from the building. The firm put the property up for sale in the autumn of 2023, reports The Real Deal, adding that Brookfield is believed to have received at least 15 offers on the tower.

Manulife US REIT’s (MUST) building Figueroa is in the same sub-market as the subject of the Brookfield transaction. MUST’s Figueroa was last valued at US$194.4 psf as at Dec 31, 2023, or US$139 million. Its occupancy rate was at 81.9% as at end-2023.

Figueroa is part of the tranche 1 properties that MUST’s manager plans to divest.  Based on the resolution approved by unitholders on Dec 14, 2023, the terms of the Disposition Mandate requires the sale of certain Tranche 1 Assets and/or tranche 2 Assets to raise minimum aggregate net sale proceeds of US$328.7 million by June 30, 2025.

The other tranche 1 assets are Centerpointe, last valued at US$75.8 million, Diablo (US$52 million) and Penn (US$108 million).

A haircut on any of these tranche 1 valuations would be cutting it very fine for MUST to achieve US$328.7 million in net sale proceeds.

Nonetheless, The Real Deal says sale numbers are picking up. In December 2023, three office properties, each in a different segment of greater Los Angeles, were sold.

Kennedy Wilson sold 400 and 450 North Brand Boulevard in Glendale for US$60 million, or US$136 psf. Carolwood bought the AON Center, a Downtown Los Angeles office tower, for about US$134 psf; and Harbor Associates bought 1640 South Sepulveda Boulevard in Westwood for US$271 psf. According to The Real Deal, each transaction was significantly lower than the previous one.

However, the Brookfield transaction at US$145 psf is an improvement on AON Center, both being in Downtown Los Angeles. Occupancies and outlook for occupancies make a lot of difference to valuations based on discounted cash flow. The occupancy of 777 South Figueroa Tower at 50%, give or take, is a lot lower than MUST's Figueroa at 81.9%.

 

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