601W’s East Loop trophy Aon Center tumbles 47% in value

601W’s trophy East Loop asset is now worth less than the loan attached to it.

One of the most prominent towers of Chicago’s skyline, the 83-story Aon Center was valued at $414 million, down nearly half from the $780 million it was worth when a $536 million loan secured by the property was issued in 2018, according to a report from credit ratings agency Morningstar.

The valuation is the latest twist in the New York-based landlord’s fight to keep the 2.8 million-square-foot office tower at 200 East Randolph Street.

601W, which is managed by Michael Silberberg, Victor Gerstein and Mark Karasick, directed a request for comment to a leasing agent for the building, Brian Whiting of the Chicago-based brokerage Telos Group. Despite the new appraisal slashing its value, he said the property has $80 million in new capital coming in from leasing revenue.

“The building’s healthy,” Whiting said.

The special servicer for 601W’s loan — which was originated by JP Morgan before the debt was sold off to investors in commercial mortgage-backed securities — approved a three-year extension this summer of the loan’s July maturity date. The extra time was granted after the landlord said it was unprepared to repay the debt and came up short with payments owed earlier this year to its mezzanine lenders in the deal, which provided a total of $142 million to the borrower at the time the larger mortgage loan was issued five years ago, loan servicer commentary logged by Morningstar said.

The building’s namesake tenant, insurer Aon, also negotiated terms for extending its lease as part of pushing out the maturity, adding two years while downsizing by 25 percent to about 300,000 square feet from the 400,000 it previously occupied, according to a report from Trepp.

Special servicer LNR Partners started overseeing a $43 million tranche of the Aon Center debt package in February. The servicer said 601W defaulted on the debt by inking a lease with 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, which was resolved when the lender agreed to cover a $1.5 million tenant improvement reserve for the building in return for a personal guarantee from the firm’s leadership for the balance of the $4.6 million tenant improvement allowance, according to reports special servicers provided to Morningstar.

601W had asked for an extension in March, when the firm fell short of covering expenses and mezzanine debt service due to property tax payments, according to a report from special servicer SitusAMC to Morningstar. The servicer said at the time that it would evaluate the request once the lease dispute was resolved.

601W bought the Aon Center in 2015 for $712 million. The firm is the owner of some of Chicago’s most notable office properties, including the Old Post Office at 433 West Van Buren Street, the Civic Opera Building on Wacker Drive – which also had its value fall below the amount of its loan and is in the midst of contentious foreclosure proceedings – and One South Wacker.

Editor’s note: This story was updated to add statements from 601W’s leasing agent at the Aon Center, and correct the length of the loan extension the landlord received.

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