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.
South Korea-based investment firm Consus Asset Management is in a deal to buy the 1 million-square-foot tower for about $145 million, according to reports from Bloomberg and Real Estate Alert, which cited unidentified sources. Brookfield did not immediately respond to a request for comment.
If the deal closes at that price, it will come out to about $145 per square foot, in line with other Downtown L.A. office trades in the last year.
Brookfield defaulted on $319 million in loans tied to the 52-story tower last year, after rising interest rates squeezed profits from the building. The firm put the property up for sale in the fall.
Sources previously told TRD that Brookfield had received at least 15 offers on the tower, which is about 52 percent leased.
Brookfield’s sale serves as another marker for office landlords and brokers in Downtown L.A., suggesting the submarket — severely hit by remote work, high office vacancies and loan defaults — is close to bottoming out.
In December, Carolwood, run by Adam Rubin and Andrew Shanfeld, bought the 1.1 million-square-foot AON Center at 707 Wilshire Boulevard for $147.8 million, or about $134 per square foot.
That sale was technically a deed-in-lieu of foreclosure and relieved the seller, Shorenstein Properties, of its unpaid debt on the tower.
Brookfield has defaulted on a total of $1.1 billion in debt tied to Downtown L.A. office towers since last February. Two other Brookfield-owned buildings Downtown, the Gas Company Tower and EY Plaza, are both in court-appointed receiverships.
“It’s just regular business. It’s small and not relevant to the overall business,” Brookfield Asset Management CEO Bruce Flatt said of the defaults last year.
Home prices increased at the fastest clip since 2022 at the start of the year, according to one closely watched home price gauge published Tuesday.
Home prices nationally in January were 6% higher than the same month in 2023, according to S&P CoreLogic Case-Shiller data. Prices in an index measuring changes in 20 of the nation’s large cities increased 6.6%.
Both indexes increased at the quickest annual pace since November 2022.
Seasonally adjusted prices also gained, with the 20-city index rising 0.14% from December, and the national index gaining 0.36%.
“U.S. home prices continued their drive higher,” Brian D. Luke, head of commodities, real and digital assets at S&P Dow Jones Indices, said in a statement. “On a seasonal adjusted basis, home prices have continued to break through previous all-time highs set last year.”
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The quick annual gain was expected. The 6.6% gain in the 20-city index was in line with the consensus call among economists surveyed by FactSet. Price gains will continue, but will slow by the end of the year, some economists say.
Prices were higher than year-ago levels in each of the 20 cities tracked by the index. Prices in San Diego, Los Angeles, and Detroit were highest compared to one year prior, rising 11.2%, 8.6%, and 8.2% respectively. The cities with the slowest gains included Dallas, Denver, and Portland, Ore., where prices grew 2.9%, 2.7%, and 0.9%, respectively.
A low supply of homes for sale, combined with a relatively easy comparison with prices at the same time last year, look set to keep prices strong this spring.
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The median home in February sold for $384,500, up 5.7% from the same month in 2023, according to the National Association of Realtors. It was the greatest price increase in the trade group’s data set since October 2022.
data suggest prices have remained strong in March. Over the four-week period ended March 17, home-sale prices rose 5.3%.
Industry economists expect gains will slow later this year. The Mortgage Bankers Association estimates that home prices in the fourth quarter measured by the Federal Housing Finance Agency’s home price index will be 4.1% higher than one year prior—a slower growth rate than the anticipated 5.7% in the first quarter of this year.
expects its home price index to be 3.2% higher than one year prior at the end of the year, slower than an anticipated 7.2% first-quarter increase.
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That’s despite mortgage rates that remain higher than levels immediately before the pandemic. Higher rates and prices has made it harder for first-time buyers to enter the market. The share of buyers purchasing a previously owned home for the first time fell to 26% of all transactions in February from 28% the month prior, the National Association of Realtors said earlier this month.
The typical buyer in February needed an annual income of $113,520 to afford the median U.S. home, according to a Redfin analysis published Tuesday. That is nearly $30,000 more than the median household income, the brokerage said. The last time the typical household earned more than it needed to afford the median home was three years ago, in February 2021, according to the analysis.
Home values are stretched relative to their historic price-to-rent ratio, Mark Zandi, Moody’s Analytics’ chief economist, wrote in a Monday note. “That valuations have remained so high given the doubling in mortgage rates since just prior to the pandemic is especially surprising,” the economist wrote, adding that high home prices are supported by an undersupply of housing and the mortgage rate lock-in effect.
“For some semblance of normalcy to return to the housing market, something has to give—mortgage rates need to decline, incomes rise, and/or house prices cool considerably,” Zandi wrote. The most likely scenario is that prices move “more-or-less sideways” for one to three years. That would “allow corporate earnings and rents to catch up and valuations to normalize at least partially.”
Write to Shaina Mishkin at shaina.mishkin@dowjones.com
Tishman Realty will sell the 1,218-room Sheraton Grand Chicago Riverwalk hotel — one of the city’s biggest lodging properties — for $500 million to Marriott this year, after the seller exercised an option for the deal under the terms of a 2017 legal settlement, according to an SEC filing.
New York-based Tishman’s decision to pull the trigger on its option to sell the property in the Streeterville neighborhood serves as an acknowledgement of its sliding value. The property, at 301 East North Water Street, was developed by Tishman, opening in 1992, but it was appraised at $516 million in 2017, according to credit ratings agency Morningstar.
A $300 million portion of the sale was agreed to between Tishman and Marriott in 2017 to settle a lawsuit Tishman brought against the hotel chain. The dispute stemmed from Marriott’s $13 billion takeover of Starwood Hotels, which owned the Sheraton brand at time of their 2016 merger. Tishman alleged that the deal would mean the Sheraton would be in direct competition with nearby Marriott properties and violate a contract.
Tishman had separated the ground from the building beneath 301 East North Water Street, and struck a ground lease between the two entities that owned the hotel and the land, according to credit ratings agency Morningstar.
Marriott is putting up $200 million to buy the underlying ground, as well as making good on its 2017 agreement with Tishman to buy the property’s leasehold for $300 million.
The purchase price for the building “reflects a liability that we established on the balance sheets, frankly, years ago as part of the overall transaction,” Marriott CFO Leeny Oberg said on the firm’s Tuesday earnings call. “So it does obviously impact our available cash for the year.”
While wild swings aren’t unusual for the hotel market, the impacts of interest rate hikes have especially drained value from large assets, limiting the lodging sector’s recovery from the coronavirus crisis despite a resurgence of demand for hotel rooms to 91 percent of pre-pandemic levels in 2023, according to figures published last month by the city’s tourism arm Choose Chicago. Revenue per available room, a closely watched metric in the industry, hit nearly $149 last year, down 2 percent from 2019.
Tishman’s option served as an insurance policy against nosediving hotel values. Its dispute that led to the settlement was over Marriott’s merger with the Starwood venture. A settlement reached in 2017 allows Tishman to force Marriott to buy the Sheraton for $300 million, and in exchange Marriott does not have to abide by Starwood’s non-compete clause for the Sheraton property.
Tishman in 2017 took out a total of $255 million in debt against the property, with the underlying ground serving as collateral for a $140 million portion of the loan and the leasehold on the hotel building securing the remaining $115 million, according to Morningstar and public records.
“In 2024, we expect another year of solid growth and significant shareholder returns,” said Marriott President and CEO Anthony Capuano. The company’s growth will “enable us to return $4.1 billion to $4.3 billion to shareholders after factoring in $500 million to purchase the Sheraton Grand Chicago,” he added.