Most of a 41-story Chicago Loop building that faces foreclosure is being touted for a second time as an opportunity for conversion into apartments.
A court-appointed receiver hired the Chicago office of CBRE to list more than 30 floors of the Clark Adams building at 105 West Adams Street, owned by Blackstone and local developer Musa Tadros, Crain’s reported. The brokerage is advertising prospects for it to become apartments.
A conversion wouldn’t come cheap, according to AmTrust Realty Chicago head Patrick Kearney, who was recently hired to oversee AmTrust Realty’s Chicago portfolio, which is undergoing $100 million in renovations to upgrade them as offices and isn’t involved in the deal.
“It’s a very expensive endeavor,” Kearney said in an interview. “I’ve looked at multiple opportunities to convert primarily office to residential. The central Loop would benefit from more multifamily.”
Chicago real estate investors are anxious to see who jumps on struggling Loop office towers riddled by vacancy and considered prime candidates for conversion into residential projects such as student housing. The city has been urged by a panel of experts convened by the Urban Land Institute to free up tax incentives to facilitate the transformation of empty properties on LaSalle Street, and to also close a section of LaSalle to vehicles to create a more retail-friendly experience on the corridor. That would coincide with lobbies getting opened up to the public and retail businesses getting installed in them.
“The rent you’ll get ultimately, at least initially, on a conversion likely won’t be anywhere near what these shiny new towers are getting in the Gold Coast and River North,” Kearney said. “Creating another 24/7 neighborhood in the middle of the Loop and having a more mixed-use feel to it would benefit office buildings, the city, all the local stakeholders. It’s just going to take time.”
In 2019, Chicago-based developer City Pads had a plan to turn the building into co-living apartments. The company couldn’t reach a deal with Musa Tadros, which faces growing loan problems in the Chicago area after First Midwest Bank filed a $22.8 million foreclosure lawsuit against it in November 2020.
“The office market is much worse than anyone anticipated,” Tadros said, according to Crain’s.
Tadros owns Will County-based Crown Commercial Real Estate, and was also named earlier this year in a separate foreclosure action over a $27.5 million loan on the Chatham Village shopping center on the South Side. It has an appraised value that dropped to $13.4 million recently from $38.7 million in 2012.
It isn’t just offices that are struggling. The hotel portion at the Clark Adams building, owned by Blackstone, is also at risk of foreclosure, Crain’s reported. Hotels dominate Chicago-area properties considered most at-risk of delinquency or default in commercial mortgage-backed securities, according to Trepp.
The $274 million loan on which Blackstone defaulted is backed by the Club Quarters hotels on the Adams building’s lower floors as well as three others in Boston, San Francisco and Philadelphia. The loan’s servicer “is evaluating options to determine workout strategy including pursuing foreclosure,” Crain’s reported, citing Bloomberg.
[Crain’s] – Sam Lounsberry