601W’s Civic Opera office loan dips under water

Appraisal cut below $151M loan balance

Civic Opera Building at 20 North Wacker (Illustration by The Real Deal; User:JeremyA, CC BY-SA 2.5, via Wikimedia Commons)

Rachel Herzog

Jun 26, 2023, 10:57 AM

601W’s troubled Civic Opera building is now worth less than the balance of the loan attached to it that’s become the subject of multiple legal battles.

The value of the 45-story Chicago office tower at 20 North Wacker Drive in the West Loop, which contains the historic 3,563-seat Civic Opera House, dropped to about $128 million this month, according to debt tracking service Trepp.

It’s the first time the building’s appraisal has dipped below the $151 million balance of New York-based landlord 601W’s $165 million loan against the property, which was issued in 2015 and then sold off to investors in commercial mortgage-backed securities, making much of the information about the debt public.

The latest dip in the 915,000-square-foot Art Deco landmark’s value presents yet another challenge to 601W, an investment firm with a penchant for vintage trophy office towers that has been fighting off debt servicers on multiple properties in Chicago since the pandemic melted demand for office space and interest rates shot up last year, further weighing on commercial real estate values.

So far, 601W has navigated the choppy waters without having to throw any assets overboard. The firm struck an agreement with debt servicers to get a four-year extension to pay back a $678 million loan on the 83-story Aon Center in Chicago’s East Loop earlier this year, as it became clear the landlord wouldn’t have the funds to satisfy a July maturity. As part of the extension, the building’s namesake tenant, insurer Aon, negotiated terms to prolong its lease by another two years while downsizing by a quarter to 300,000 square feet.

And renewable energy and natural gas developer Invenergy is in talks to substantially increase its existing 106,000-square-foot lease at its headquarters in 601W’s One South Wacker, a deal that could save the landlord yet again after the property’s former largest tenant RSM vacated its lease in 2021 and the asset sat below 64 percent occupied as of this spring. 601W is staring down a December maturity date on a $310 million securitized debt package for that property.

It remains to be seen, however, whether the landlord can work out a deal to hold onto the Civic Opera building. Wells Fargo filed a $195 million foreclosure suit against the owners in 2021, alleging that they failed to make monthly loan payments starting in May of that year. The Cook County Circuit Court appointed real estate services firm Transwestern as receiver the following week.

601W, helmed by Mark Karasick, was in talks to work out a potential loan modification for the Civic Opera building, but those negotiations hit a dead end earlier this year and the servicer overseeing the loan forged ahead with foreclosure litigation as the likely solution, according to notes on the loan collated by DBRS Morningstar.

Requests for comment were not returned by either 601W nor Berkley Properties — which also has equity in the property and is headed by Michael Silberbeg, who has ties to 601W.

The landlord firm bought the Civic Opera for $126 million in 2012, when it was less than 75 percent leased. 601W spent nearly $6 million more renovating the building’s common areas and added a rooftop deck, drawing new tenants to bring the building to more than 92 percent leased when it refinanced and took out a $165 million mortgage against the property. At the time, it was appraised at $220 million, meaning a 41 percent drop in value has occurred since, if the appraisals are to be believed, loan records show.

In April this year, Wells Fargo sued Silberberg in his individual capacity seeking to recover the full cost of the Civic Opera loan based on a personal guarantee he signed for the debt.

Chicago