New Appraisals Hammer Chicago Offices

Appraisers are still drilling Chicago offices, yet may have changed their tune on a prominent but troubled Central Loop hotel.

New evaluations performed on 300 West Adams Street in the West Loop and a Lincoln Property Group-owned office complex in the western suburbs punished their owners in recent weeks as neither asset has generated much momentum leasing space that tenants dropped in recent years.

AmTrust Real Estate’s building at 135 South LaSalle Street formerly leased by Bank of America was hit again, too, according to data from ratings agency DBRS Morningstar.

But the Palmer House Hilton may have turned a corner, showing it can generate enough revenue to stop its bleeding. The value of the 1,641-room asset at 17 East Monroe Street rose to $344 million as of January, up from $305.5 million when the $239 million loan on the downtown asset was moved into special servicing soon after the onset of the pandemic in April 2020, Morningstar said.

Even with the boost, it’s still a massive loss in valuation from the time the loan against the hotel was issued in 2018, when the property was appraised at $560 million, loan data shows. A Cook County judge issued an order of foreclosure against the property’s owner, New York-based Thor Equities, for defaulting on its mortgage last summer, setting the hotel up to be auctioned. A Thor spokeswoman did not respond to a request for comment.

Meanwhile for offices, the size of losses keeps growing.

At 300 West Adams, a 12-story, 254,000-square-foot building across the street from the Willis Tower, the property value has fallen 47 percent to a $20 million appraisal as of February, down from $38 million in 2012 when its former owner, Pennsylvania-based Alliance HSP, obtained a $25 million loan against the property, Morningstar shows. The property was 61 percent leased as of December compared to 77 percent in 2020 and 97 percent in 2018, Moody’s said this month.

“Moody’s expects a significant loss from this loan,” the ratings agency said. Rather than fight a foreclosure, Alliance in 2021 transferred its leasehold interest in the asset to Morgan Stanley, which took it over on behalf of investors in the commercial mortgage-backed securities debt against the building.

It was being marketed for sale last year, after Alliance tried and failed to sell it in 2019, but a deal never materialized either time, so it’s set to be cast back out to potential buyers again this year, Moody’s said.

And the Central Park of Lisle office complex had its value fall to $68.3 million this month, down nearly 50 percent from an appraisal of $135 million when its $79.5 million loan was issued in 2017.

The Lisle asset’s loan has been in special servicing since September, and matured in January without being paid off, according to Morningstar. The two-building, 690,000-square-foot complex at 4225 Naperville and 3333 Warrenville roads had its occupancy fall below 80 percent. Its owner, Dallas-based Lincoln Property Company, which bought it from Blackstone for $129 million in 2017, did not respond to a request for comment.

While the Central Park of Lisle is a newer office complex, built about 20 years ago, the historic Field Building at 135 South LaSalle was constructed in the 1930s and is the target of a redevelopment effort that would remove space from the Central Loop office market struggling with record-high vacancy.

The 45-story property’s New York-based owner, AmTrust, along with Chicago’s Riverside Investment & Development, have pitched turning the office building into about 430 apartments and soliciting a grocer for the ground floor or first two levels as part of the city’s “LaSalle Street Reimagined” initiative, which aims to convert outmoded office buildings into affordable housing.

In the meantime, though, its value has slid enormously. Its appraisal fell to $130 million when its loan was sent into special servicing earlier during the pandemic, and it’s plummeted yet again, to $90 million, or $69 per square foot, down from $330 million when the $100 million loan on the property was issued in April 2015, Morningstar data from this month shows. An AmTrust executive did not respond to a request for comment.