Related Party Transactions

6 Months Ended

Jun. 30, 2022

Management Agreements

Certain subsidiaries of Brookfield DTLA have entered into arrangements with the Manager, pursuant to which the Manager provides property management and various other services. The following table presents the basis of fees incurred to the Manager and Brookfield affiliates during the three and six months ended June 30, 2022 and 2021:

Fee Type

Affiliate

Fee Description

Property management

The Manager

2.75% of rents collected (as defined in the management agreements)

Asset management

BPY and BAM

0.75% of DTLA Holdings’ invested equity in Brookfield DTLA’s properties

Leasing

The Manager and Brookfield affiliates

1.00% to 4.00% of expected rents, depending on the terms of the lease and whether a third-party broker was paid a commission for the transaction

Construction management

The Manager

3.00% of hard and soft construction costs

Development management

Other

3.00% of hard and soft construction costs

Entitlement

Other

20.00% of the entitlement costs incurred by BOA Plaza, if the entitlement budget is less than $3,000,000

A summary of fees and costs incurred by the applicable Brookfield DTLA subsidiaries under these arrangements is as follows:


	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021

Property management	$	2,007	$	1,946	$	3,975	$	3,982
Asset management	$	1,571	$	1,533	$	3,130	$	3,080
Leasing	$	584	$	223	$	665	$	503
Construction management	$	81	$	(146)	$	138	$	133
Development management (1)	$	401	$	357	$	967	$	706
Entitlement	$	16	$	142	$	71	$	209
General, administrative and reimbursable expenses	$	1,002	$	635	$	1,740	$	1,220

__________

(1)Amounts presented are calculated by applying the Company’s ownership interest percentage in the unconsolidated real estate joint venture as of period end to the costs incurred during the period.

Expenses incurred under these arrangements are included in rental property operating and maintenance expense in the consolidated statements of operations, with the exception of asset management fee which is included in other expenses. Leasing fees are capitalized as deferred charges, construction management and entitlement fees are capitalized as part of investments in real estate, and development management fees are capitalized and included in the investment in unconsolidated real estate joint venture in the consolidated balance sheets.

Insurance Agreements

Properties held by certain Brookfield DTLA subsidiaries and affiliates are covered under insurance policies entered into by the Manager. Insurance premiums for Brookfield DTLA’s properties are paid by the Manager. Brookfield DTLA reimburses the Manager for the amount of fees and expenses related to such policies that have been allocated to the Company’s properties as determined by the Manager in its reasonable discretion taking into consideration certain facts and circumstances, including the value of the Company’s properties.

A summary of costs incurred by the applicable Brookfield DTLA subsidiaries and affiliates under this arrangement, which are included in rental property operating and maintenance expense in the consolidated statements of operations, is as follows:


	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021

Insurance expense (1)	$	3,082	$	3,199	$	6,165	$	6,391

__________

(1)An affiliate of BAM secures insurance policies for the Company through third-party brokers and insurance companies and charges the Company a fee for the services it provides. Fees charged vary but will not exceed 2.50% of the total net insurance premiums of the Company and its covered properties. Effective November 1, 2021, this affiliate of BAM ceased charging such fee. During the three and six months ended June 30, 2021, fees incurred for these services totaled $76 thousand and $154 thousand, respectively. Additionally, the Company’s terrorism insurance coverage is purchased through a captive facility that is an affiliate of BPY. Insurance premiums incurred totaled $32 thousand and $64 thousand, respectively, during each of the three and six months ended June 30, 2022 and 2021.

Other Related Party Transactions with BAM Affiliates

A summary of the impact of other related party transactions with BAM affiliates on the Company’s consolidated statements of operations is as follows:


	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021

Lease income (1)	$	3,475	$	4,189	$	7,085	$	8,965
Parking revenue (1)	$	247	$	246	$	494	$	496

Rental property operating and maintenance expense (2)	$	—	$	149	$	—	$	260

Interest expense (3)(4)	$	626	$	565	$	1,194	$	1,060

__________

(1)In September 2019, BAM acquired a significant interest in Oaktree Capital Group, LLC (“Oaktree”), an existing tenant at Wells Fargo Center–North Tower. Lease income and parking revenue from Oaktree and its subsidiaries have been reported as related party transactions since the date of acquisition by BAM.

(2)Amounts presented are for purchases of chilled water for air conditioning at one of the Company’s properties supplied by an affiliate of BAM. In July 2021, such supplier was acquired by third parties.

(3)A subsidiary of Oaktree is the lender of the $35.0 million mezzanine loan secured by Wells Fargo Center–North Tower. Interest payable to the lender totaled $105 thousand as of June 30, 2022 and is reported as part of accounts payable and other liabilities in the consolidated balance sheets. See Note 6—“Secured Debt, Net.” Interest expense on this loan has been reported as a related party transaction since the date of acquisition by BAM.

(4)In February 2021, BAM purchased $18.2 million of commercial mortgage-backed securities (“CMBS”) secured by the Gas Company Tower loans in the open market. The CMBS are payable in monthly installments over a two-year period at a fixed interest rate of 2.50%. The transaction was conducted on an arm’s length basis at fair market value. In September 2021, this CMBS was sold to Brookfield Asset Management Reinsurance Partners Ltd., an affiliate of BAM. During the three and six months ended June 30, 2022, the Company incurred interest expense of $115 thousand and $229 thousand, respectively, on this CMBS, compared to $114 thousand and $162 thousand, respectively, during the three and six months ended June 30, 2021.

The Manager or its affiliates may incur certain out-of-pocket expenses on behalf of the Company and pass through such expenses at cost to the Company.

Brookfield DTLA Fund Office Trust Investor Inc. 10-Q