Inside 601W’s fight to keep Aon Center

As cash flow dries up, deal reached with lender to avoid default

Aon Center at 200 East Randolph Street and SitusAMC's Michael Franco
Aon Center at 200 East Randolph Street and SitusAMC's Michael Franco (Google Maps, SitusAMC)

Special servicers are sinking their teeth into the massive debt on the Aon Center, one of Chicago’s tallest skyscrapers, while its owner struggles to refinance and is in the thick of a workout with its lenders over a key lease.

A special servicer started overseeing a portion of the $678 million debt package on 601W’s 83-story office tower at 200 East Randolph Street in February, months ahead of the loan’s July maturity. It claimed 601W defaulted on the debt by inking a lease with the Blue Cross Blue Shield Association without the lender’s approval. In the weeks since, the lender and landlord have been at odds over the tenant improvement allowance that 601W granted to Blue Cross.

Now, the lender has agreed to cover a $1.5 million tenant improvement reserve for the building. But in return, it demanded a personal guarantee from 601W’s principals, Michael Silberberg, Victor Gerstein and Mark Karasick, for the balance of a $4.6 million Blue Cross tenant improvement allowance, according to recent reports from special servicers SitusAMC and LNR Partners provided to credit ratings agency DBRS Morningstar.

But that may not settle the dust at the 2.8-million-square-foot property. The special servicers’ latest memos provide some insight into how things have gone.

The loan’s debt service coverage ratio, a measure of the cash flow available to pay debt obligations, was reported as below the benchmark 1.1 at the end of 2022, meaning the loan now requires the borrower to deposit rent revenues into a lender-controlled account, according to Situs. That’s down from a ratio of 1.5 as of December 2020.

In March, the landlord fell short of covering expenses and mezzanine debt service due to property tax payments, Situs said. Additionally, the servicer said 601W is seeking to extend the loan’s July maturity date, “as it is not prepared at this time to repay the debt.” The special servicer will evaluate the request once the lease dispute is handled.

601W could not be reached for comment. Situs did not return a request for comment. KeyBank, master servicer for the loan, declined to comment.

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Brokers at Telos Group, which represented 601W in lease negotiations with Blue Cross, were not familiar with the tenant improvements referenced in Situs’ latest update, according to a spokesperson, though the brokerage previously said the Aon Center secured approval from its lenders to move forward with the deal.

There may be some good news for 601W at the building in the works: its namesake tenant, Aon, is in talks to stay, the Morningstar reports show. It’s still unclear, though, whether the company will reduce its footprint. LNR Partners, a special servicer overseeing a separate portion of the debt against the building from Situs, said 601W has negotiated a letter of intent with Aon for the renewal and extension of its lease. LNR didn’t return a request for comment.

601W purchased the tower for $712 million in 2015.

If the firm is able to maintain its hold on the property, it won’t be the first maneuver in a tricky environment for commercial landlords it has pulled off in recent months. On the East Coast, 601W closed a $420 million purchase of three Jersey City office buildings at the end of the first quarter.

But 601W still faces a foreclosure suit over Chicago’s Civic Opera Building, and Silberberg was sued in his individual capacity over the loan on that property earlier this month.

This story has been updated to correct that SitusAMC is the special servicer overseeing a portion of the debt against the Aon Center, after an earlier version named a separate firm that previously handled the loan as special servicer.

Read more

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Aon Center loan heads to special servicing 
Civic Opera Building at 20 North Wacker Drive
Michael Silberberg sued over Civic Opera Building loan
Mark Karasick’s 601W faces $195M foreclosure on Civic Opera House
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