AmTrust Losing Largest Tenant In Illinois Center

AmTrust Realty is in the path of another body blow for Chicago’s office sector when the largest tenant at an East Loop property relocates when its lease expires later this year.

The U.S. Department of Health & Human Services is ditching its roughly 170,000-square-foot space in the Illinois Center at 233 North Michigan Avenue, presenting further challenges for the landlord, New York-based AmTrust, Crain’s reported.

With the federal agency on its way out the door, and the 2.1-million-square-foot complex’s second-largest tenant, Bankers Life & Casualty, also leaving at the end of the month, AmTrust is facing a difficult financial position with the property.

There’s a roughly $248 million debt balance on a loan against the two-tower asset, and it’s set to mature in a year. With the loss of major tenants, Fitch downgraded the debt and predicted that AmTrust will default on its mortgage due to “refinancing concerns,” the outlet reported.

The federal health agency will move to federally owned buildings at 230 South Dearborn Street and 77 West Jackson Boulevard when its lease expires in November, which will bring the Illinois Center’s occupancy rate down to a measly 48 percent. Reasons for the move are unclear.

The departure won’t be easy for AmTrust to backfill. If the government agency takes less space at its new location, the move will drive up Chicago’s record high office vacancy rate of nearly 23 percent. Stubborn remote work trends, compounded by hiked interest rates and a tight lending climate that’s making it tougher for landlords to refinance their assets, is causing office distress to permeate the city.

AmTrust purchased the Illinois Center for $376 million in 2015, when the complex was 70 percent leased. The property scraped by in 2022, generating nearly $15.9 million in net cash flow, just more than its $15.8 million debt service payments for the year but down significantly from its $23.9 million in net cash flow in 2019, according to loan records.

Despite the bleak outlook on the Illinois Center’s future, AmTrust, which owns five other downtown Chicago towers, has no plans to throw in the towel at this one. The company is planning a number of renovations at the site, including an upgraded conference center and added amenities, according to a special servicer that’s overseeing the mortgage.

Furthermore, AmTrust’s mostly empty asset at 135 South LaSalle, the former office space for Bank of America, is being eyed for a $258 million conversion into more than 400 apartments after the landlord fell behind on debt payments for its $100 million loan against the property, which spans 1.3 million square feet.

— Quinn Donoghue