Condor Partners’ Pilsen office loan in trouble

Condor Partners’ $32.5 million loan on the two-building Mural Park office property it redeveloped in Pilsen is under water, putting the asset in danger of foreclosure.

The Chicago-based real estate investment and development firm renovated the two 100-year-old loft buildings at 1900 and 1911 South Sangamon Street in the gentrifying southwest side neighborhood into commercial office space starting in 2017. Now, ratings agency DBRS Morningstar projects that the loan tied to the property will result in a 20 percent loss.

The loan from New York-based Ready Capital was put in special servicing in May after Condor was unable to close a loan with a new lender and fully refinance the debt. The loan originally matured in December 2021, and while Ready Capital initially provided a short-term extension, the lender is now exploring both foreclosure and other strategies to work out the debt, according to a DBRS Morningstar report published late last month.

Condor Partners CEO Solomon Barket could not be reached for comment. Ready Capital and KeyBank, the master servicer on the loan, didn’t return requests for comment. LNR Partners, special servicer on the loan, declined to comment.

It’s the latest distress signal from Chicago’s depressed office market. The city’s overall office vacancy rate was close to a record high of more than 15 percent in the fourth quarter of 2022, according to a report from Cawley.

One of the buildings, the southernmost, is fully leased to Health Care Service Corporation. The health insurance company recently completed a build-out of 103,000 square feet and expects to begin occupying later this year, a spokesman said in an email, which will bring the two-building property’s occupancy rate to 68.5 percent.

But that deal alone — a 10-year lease at $24 per square foot per year on a triple-net basis, meaning the tenant pays for property taxes, insurance and maintenance — hasn’t brought in enough revenue to keep the lender from growing wary of the debt.

The borrower has no available future funding under the existing loan’s terms to pay for costs of new leases, Morningstar noted. And while the property’s value was projected by a June appraisal to rise to $49.3 million by 2025 once stabilized by leasing revenue, the borrower hasn’t come close to achieving that.

The June appraisal pegged the property’s current value at $35 million, which could easily be overcome by the loan’s balance with delinquency and special servicing fees tacked on, since Condor has been behind on the debt for more than a year.

The project’s other tenants are beer marker 5 Rabbit Cerveceria and bakery ingredient manufacturer Puratos Inc.