One of downtown Chicago’s most prominent retail spaces has a new owner after its lender took over following some tough luck on leasing deals completed by a venture of John Rutledge’s Oxford Capital.
Connecticut-based Starwood Property Trust took possession of The Shops at LondonHouse, the 30,000-square-foot retail property at the southwest corner of Michigan Avenue and Wacker Drive beneath the 452-room LondonHouse Chicago hotel. The hotel sprung from a redevelopment from a landmarked office building led by a joint venture of Oxford and Angelo Gordon.
Starwood placed a $42 million senior loan on the Shops at the LondonHouse — the retail segment of the property, which is split from the separately owned hotel — on nonaccrual status last quarter. In a recent SEC filing, the investment company announced it snagged ownership of the retail space through a deed in lieu of foreclosure that allowed the borrower to avoid a potentially costly and lengthy court fight.
“In May 2023, we obtained a deed in lieu of foreclosure on a mortgage loan on the retail portion of a hotel located in Chicago, which resulted in our obtaining physical possession of the underlying collateral,” the document said.
There appears to be little bad blood in the deal, as the joint venture that redeveloped the property has already had financial success selling the hotel.
In 2016, Oxford and Angelo Gordon — a company acquired earlier this year by TPG for $2.7 billion — sold the LondonHouse Chicago hotel for $315 million to German investment manager Union Investment Real Estate, at what was a record price per room at the time of $697,000. Oxford’s hotel operation arm continued to manage the hotel as part of the sale.
When the joint venture sold the hotel, it also subdivided and refinanced the two-story retail parcel and kept ownership of that portion of the property.
“We then proceeded to lease it up to approximately 95 percent including adding new leases during Covid,” Oxford head Rutledge said.
But two of the tenants ran into trouble, as Corner Bakery declared bankruptcy and LaBorre Cafe ran out of money before finishing construction on its space and opening, he said.
“Cash flow could no longer cover debt service. So we negotiated a friendly give back of that small retail parcel,” Rutledge said. “We look forward to seeing the final Michigan Avenue retail space, approximately 5,000 square feet, get leased and to have the overall retail offerings continue to be compatible with our LondonHouse Luxury Lifestyle Hotel Operation for years to come.”
Neither TPG nor Starwood immediately responded to requests for comment.
The LondonHouse building was originally completed in 1923 and formerly known as the London Guarantee Building. It was offices before Oxford’s conversion into a hotel was completed in 2016, and got designated a Chicago landmark in 1996.
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