Defaults Are Coming to a Downtown Near You

Facing rising interest rates and empty buildings, even wealthy landlords are skipping payments on office space

- Natalie Wong and John Gittelsohn

Wall Street titans pride themselves on knowing when to take risks, especially in moments of uncertainty. But as borrowing costs soar and the work-from-home trend leaves downtown offices half empty, even the biggest players are quickly realizing they miscalculated.

Take Pacific Investment Management Co. In 2021, even after offices emptied during the pandemic, funds managed by the $1.7 trillion asset manager paid $3.9 billion for Columbia Property Trust, which owned at least 15 office buildings in New York, San Francisco, Boston and Washington, DC. “High quality office buildings in major US cities offer long-term value for our clients,” Pimco’s global head of private commercial real estate, John Murray, said at the time.

Or not. Last month, Columbia Property Trust defaulted on about $1.7 billion worth of mortgages on seven of its trophy buildings, including a San Francisco tower leased to Elon Musk’s Twitter and the former New York Times headquarters, now home to Snap. The finance behemoth wasn’t alone: Brookfield Corp., one of the biggest property owners in the world, also defaulted on two downtown Los Angeles skyscrapers, one of them crowned with the name of accounting firm Deloitte.