Lenders taking control of big Loop office buildings

Distress breaks owners that were already facing tenant losses before pandemic scratched chances to refill buildings

175 Jackson Blvd. and 135 S. LaSalle in Chicago (Brookfield Properties, Loopnet)
175 Jackson Blvd. and 135 S. LaSalle in Chicago (Brookfield Properties, Loopnet)

Lenders are taking control of two big office buildings in the Chicago Loop that were struggling before the pandemic and have fallen further behind on their loans.

Canada’s Brookfield Asset Management is turning over its 22-floor, 1.4 million-square-foot building at 175 West Jackson Boulevard to its lender after becoming delinquent on a $258 million loan, which was sent to special servicing in November, Bisnow reported earlier, citing loan data tracker Trepp.

Its occupancy was just 63 percent as of January, according to a Morningstar analysis of the loan, for which LNR Partners is special servicer.

Another distressed property in the Loop, 135 South LaSalle Street, owned by New York-based AmTrust Realty, is also set to have its deed handed to a special servicer, after falling behind on payments toward a $100 million loan, Bisnow reported, citing Trepp. The loan’s special servicer is Torchlight Investors, which has agreed to skip filing a foreclosure suit if it gets keys to the LaSalle building, a transaction in negotiations, Crain’s reported, citing Bloomberg data.

The seizures by the lenders are the most prominent examples of how Chicago’s office market has been slammed by the coronavirus. The rise of remote work drained the pool of potential replacement tenants for properties that were already facing the loss of large leases ahead of the health crisis, and there could be more trouble ahead in Chicago and across the nation if leaseholders decide to shrink their footprints.

While pedestrian counts are up in downtown areas of Chicago, San Francisco and Houston, exciting retailers, office landlords don’t yet have much to celebrate as workers were entering offices at just 41 percent of 2019 levels in the country’s 10 largest office markets as of March 9, according to Kastle, which provides commercial real estate security equipment and software. Many professionals expect to enter the office just three days a week even as the pandemic eases, which could give companies reason to shrink their footprints in downtown buildings.

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The LaSalle property, known as the Field Building, was hurt by longtime tenant Bank of America’s decision to vacate 830,000 square feet last year to move into its namesake tower, a 57-story building at 110 North Wacker Drive. The value of Field has dropped by $200 million to about $130 million since 2015, leaving the property owner just above water on its loan, according to The Real Deal reporting on a recent appraisal.

“[AmTrust’s] apparent willingness to hand over keys is also an obvious negative. There are challenges in the market that will contribute to lower demand for the asset,” Morningstar’s latest report on the LaSalle property said.

Brookfield paid $306 million for the Jackson Boulevard property in 2018 and is walking away after failing to restructure its debt in talks with LNR, property records show. Its largest tenant is Enova International, which leases 168,000 square feet and has the space until 2027.

[Bisnow] – Sam Lounsberry

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