KBRA Places All Ratings of BFLD 2020-EYP on Watch Downgrade, Following Further Reduction in Collateral Property’s Appraised Value

KBRA places all ratings of BFLD 2020-EYP, a CMBS SASB transaction, on Watch Downgrade. The Watch action is primarily driven by the recent reduction in the collateral property’s appraised value and concurrent increase in interest shortfalls, which are now affecting all rated certificates below the AAA-rated Class A. The classes whose ratings are placed on Watch Downgrade are susceptible to further interest shortfalls from special servicing fees and other trust expenses and have a heightened risk of potential principal losses while the special servicer works to resolve the loan. Cumulative interest shortfalls total $11.5 million, while outstanding servicer advances total $17.1 million as of November.

The servicer recently reported an updated as-is appraised value of $150.0 million ($158 per sf) as of September 2024, resulting in an LTV of 183%. The previous appraised value was $210.7 million in December 2023. Based on the new appraised value there is a heightened risk that the special servicer could render a non-recoverability determination, thereby shutting off interest advances to all the rated certificates. Based on the latest value, the servicer reported an appraisal reduction amount of $170 million in November.

The trust loan is in special servicing, is 90+ days delinquent and categorized as a matured non-performing loan as of November. It was transferred in April 2023 for imminent monetary default after the loan sponsor, Brookfield DTLA Holdings LLC, notified the servicer that it would cease paying debt service on the loan. A receiver was appointed the following month. The borrower failed to repay or extend the loan at maturity in October 2023. The servicer recently reported that a court approved the receiver’s request to hire a broker to market the collateral building for sale.

The trust collateral is a $275.0 million ($283 per sf) non-recourse, first-lien mortgage loan secured by the borrower’s fee simple interest in Ernst & Young Plaza, a 41-story, 973,364-sf, Class-A, LEED Platinum-certified office tower in Downtown Los Angeles. The tower was developed in 1985. The floating-rate loan was structured with an initial two-year term and three one-year extension options. It requires monthly interest-only payments based on one-month term SOFR plus a spread of 2.857%.

Ernst & Young Plaza is 69% leased as of August, down from 78.4% at issuance. Leases expiring in the near term will continue to put downward pressure on occupancy and effective rents at the building. In 2025, several leases that generate roughly 26% of total rent will expire, including that for the largest tenant, General Services Administration (June 2025), which contributes 18% of the property’s total rent. A $13.1 million leasing reserve was established at closing, however, no funds remain in the account as of November.

The Downtown Los Angeles office market is one of the worst performing markets in the country, with an overall vacancy rate of 32.8% and an availability rate of 37.5% as of Q3, according to CBRE. The market recorded negative net absorption of nearly 1.2 million sf year-to-date.

KBRA will continue to monitor the transaction and loan performance, effectuating additional watch placements as necessary, and will seek to resolve or update the Watch Downgrade status within 90 days.

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