601W scores extension for huge Aon Center loan

Landlord reached deal to push out next month’s maturity on $536M debt

SitusAMC’s Michael Franco with the Aon Center at 200 East Randolph Street (SitusAMC, Ken Lund from Reno, Nevada, USA, CC BY-SA 2.0, via Wikimedia Commons)

Rachel Herzog

Jun 12, 2023, 6:19 PMUpdated Sep 8, 2023, 5:14 PM

The runway is getting longer for 601W.

The New York-based landlord of some of Chicago’s most prominent office buildings is poised to receive an extension for its massive debt on the Aon Center in the East Loop.

The special servicer for the property’s $536 million senior loan approved a three-year extension of the loan’s July maturity date, which is in the process of being documented, according to Trepp.

The building’s namesake tenant Aon has also negotiated terms for the extension of its lease, the report said. KeyBank, the loan’s master servicer, declined to comment. While Aon added two years to its lease, it downsized to about 300,000 square feet, from the 400,000 it had previously occupied.

The extra time granted to 601W is also being requested by the landlord of the nearby One Two Pru office complex totaling 2.3 million square feet, a borrower moving more proactively to prolong its repayment of $389 million in debt against that property.

Landlords who used office buildings as collateral to secure debts are trying to dodge loan maturities scheduled for the rest of the year and even beyond, as rising interest rates and a weak office leasing market squeeze owners.

Wanxiang America Real Estate Group, the owner of the two-tower One Two Pru asset, for instance, is apparently doubtful the market can make a sudden recovery. The landlord made its request for an extension of four or five years well ahead of its loan’s 2025 maturity, illustrating the firm’s lack of confidence that a quick turnaround is in store.

The latest developments at Aon Center are a bright spot in 601W’s fight to hold on to the 83-story, 2.8-million-square-foot office tower at 200 East Randolph Street.

Special servicer LNR Partners started overseeing a $43 million tranche of the debt package on the building in February, claiming that the firm defaulted on the debt by inking a lease with the Blue Cross Blue Shield Association without the lender’s approval.

That kicked off a dispute between the lender and landlord over the tenant improvement allowance 601W granted to Blue Cross. The lender ultimately agreed to cover a $1.5 million tenant improvement reserve for the building, demanding in return a personal guarantee from the firm’s leadership for the balance of a $4.6 million Blue Cross tenant improvement allowance, according to reports that special servicers SitusAMC and LNR Partners provided to credit ratings agency DBRS Morningstar.

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

601W, whose managing members are Michael Silberberg, Victor Gerstein and Mark Karasick, did not respond to a request for comment. SitusAMC and LNR Partners did not respond to requests for comment.

Elsewhere in Chicago, 601W is trying to fight off a foreclosure of its Civic Opera Building property on Wacker Drive. The landlord is also in talks with renewable energy and natural gas developer Invenergy to about double the size of its lease to more than 200,000 square feet at One South Wacker, where vacancy skyrocketed in recent years to about 40 percent.

Correction: The length of the loan extension granted to 601W has been updated in this story.

Chicago