Introduction to Office Distress in Los Angeles County
More trouble hit the Norman Kravetz-helmed Realty Bancorp’s Los Angeles County office portfolio. After the commercial mortgage-backed securities debt connected to the five-property portfolio landed in special servicing earlier this summer, the borrower is delinquent, and the value is less than half as much as it was at underwriting six years ago.
Portfolio Overview
The 346,800-square-foot portfolio, located in Aguora Hills, Woodland Hills and Calabasas, was recently appraised at $47.8 million compared to $101.6 million in 2019, according to Morningstar Credit. Not only has the portfolio’s value dropped to $138 per square foot, but it is worth less than the $67.3 million current debt balance tied to it. Realty Bancorp and Norman Kravetz did not immediately respond to a request for comment. The addresses are: 29903 Agoura Road, 29899 Agoura Road, 29901 Agoura Road, 5230 Las Virgenes Road and 5855 Topanga Canyon Boulevard.
Significant Tenants and Leases
The property at 29899 Agoura Road was home to the Los Angeles Rams for nine years, but the team’s billionaire owner Stan Kroenke is moving the team’s headquarters as part of a $10 billion development plan at Warner Center in Woodland Hills. The Rams’ lease, which totaled 30 percent of the space, expired in February. Plus, Western General Insurance vacated its 28,000-square-foot lease at the Calabasas property three years before its expiration.
Occupancy and Financial Performance
Total occupancy for the five office buildings declined to 72 percent at the end of June from 98 percent at underwriting — the properties are not bringing in enough money to pay off debt, Morningstar data shows. The portfolio has a debt service coverage ratio below one, and its net operating income has plummeted to about $3.1 million, down from about $6.3 million.
Current Status and Future Plans
But the latest servicer commentary indicates that the borrower is requesting a short term forbearance, meaning a temporary suspension of loan payments for a set period; the special servicer is reviewing that and working toward a resolution. The Greater Los Angeles area has a 24.1 percent office vacancy rate. Many office landlords are grappling with post-pandemic distress despite the recent return to office momentum, as tenants are choosing newer properties full of lavish amenities in desirable locations to lure workers back to their desks.
Related News
Kravetz office portfolio’s $68M loan heads to special servicing
First Citizens Bank pays more than $1K psf for Santa Monica offices
Conclusion
The Realty Bancorp office portfolio in Los Angeles County is facing significant distress due to declining occupancy and financial performance. The borrower’s request for a short-term forbearance is currently being reviewed, and the special servicer is working towards a resolution. The situation highlights the challenges faced by office landlords in the post-pandemic era, as tenants increasingly prefer newer properties with amenities in desirable locations.
FAQs
Q: What is the current value of the Realty Bancorp office portfolio in Los Angeles County?
A: The portfolio was recently appraised at $47.8 million, down from $101.6 million in 2019.
Q: What is the current occupancy rate of the portfolio?
A: The total occupancy for the five office buildings declined to 72 percent at the end of June from 98 percent at underwriting.
Q: What is the debt service coverage ratio of the portfolio?
A: The portfolio has a debt service coverage ratio below one.
Q: What is the net operating income of the portfolio?
A: The net operating income has plummeted to about $3.1 million, down from about $6.3 million.
Q: What is the current office vacancy rate in the Greater Los Angeles area?
A: The Greater Los Angeles area has a 24.1 percent office vacancy rate.
