Digging into Nuveen’s Chicago Office Loan Pain

Distressed loans remain the primary driver of Chicago’s commercial real estate market, with little relief in sight after this week’s stock market selloff stoked broader fears about the economy.

Chicago-based Nuveen has taken heavy losses on office deals in its home base. Its lending strategy is mostly based on mezzanine deals, which provide borrowers cash without the security of a mortgage. While that allows the lender to charge more interest, it has come back to bite on a few big office deals, and could spread trouble into 321 North Clark Street.

The commercial development market was also dealt a painful blow as Bank OZK seized the northern portion of Sterling Bay’s Lincoln Yards, a North Side plot along the Chicago River between Lincoln Park and Bucktown once slated for a $6 billion megaproject. The development has long been in financial turmoil, with the bank’s takeover marking the most significant setback to date.

Blackstone also seized a distressed office tower on the Magnificent Mile from borrowers CIM Group and Golub & Co.

What might help commercial landlords is property tax reform. Cook County Assessor Fritz Kaegi, among others, is often blamed for scaring institutional investors away. But he also said this week he knows the system needs to change, and presented some ideas that could help eliminate year-to-year volatility on tax bills that has turned off many would-be buyers.

In the residential market, Compass points to controversy.

One of the brokerage’s top Chicago dealmakers, Ben Lalez, is being accused by a former employee of collecting “kickbacks” from a lawyer and lender he allegedly steered clients toward using.

And as talk swirls of Compass acquiring Warren Buffett’s real estate brokerage, Berkshire Hathaway HomeServices, a couple former BHHS dealmakers in Chicago explained how the firm lost ground locally as they and a string of others left for Compass.

Finally, the St. Regis has been Chicago’s “it building” for four years since it opened. But bulk sales — and the often negative perceptions of them held by wealthy condo purchasers — have come to shape the building as downtown Chicago’s recovery moves forward.