Downtown office landlords don’t want to try to cough up balloon payments for loan maturities as distress ripples through the sector over the rest of this year, and one of Chicago’s prominent apparently doubts things will be much better in 2025, either.
Wanxiang America Real Estate Group, the owner of the 2.3-million-square-foot One Two Pru complex, requested its $389 million debt against the property get transferred to a special servicer so an extension of the loan’s 2025 maturity date can be considered by the lender, the Chicago Tribune reported. The landlord bought the office towers at 130 East Randolph Street for $680 million in 2018.
Loan transfers to special servicing often signal distress or imminent default, but Wanxiang aims to use the tactic to prolong its ownership of the property. The firm will seek a modification that would push out the debt maturity by four or five years. With the extra time, Wanxiang says it would be able to invest more in the towers by adding new amenities and improving common areas to attract tenants and overcome the remote work movement fueled by the pandemic.
“When people hear special servicing, they put a negative spin on it, but in this case it’s positive news,” Wanxiang’s Larry Krueger told the outlet. “We think it may take longer than two years for the market to stabilize, and we don’t want to worry about our underlying debt in the meantime.”
Wells Fargo is the administrator of the loan, which was packaged into commercial mortgage-backed securities bought by bondholders. One Two Pru — which consists of two towers, a 41-story building and its newer 64-story neighbor — is 22 percent vacant, a figure that’s on par with the record-high downtown office vacancy rate last quarter. Wanxiang expects the property’s occupancy to decline over the next few years as some leases expire. One Two Pru tenants with lease expirations ahead of December 2025 were occupying about 27 percent of the property’s square footage as of the end of 2022, according to credit ratings agency DBRS Morningstar.
Waiting until 2025 to seek loan modifications is risky and Wanxiang is wise to take action early, Adam Friedman, a partner with New York law firm Olshan, told the outlet.
“The debt market is pretty frozen right now, especially in the office sector,” he said. “People have been calling it Armageddon, and most feel it’s going to get worse before it gets better, so generally speaking, it might be prudent to get ahead of this.”
— Quinn Donoghue
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