Mike Golden and Thad Wong, founders and co-CEOs of Chicago’s biggest residential real estate brokerage @Properties, may have stumbled out of the gate with their Fulton Market mixed use development at 171 North Aberdeen Street.
But they’ve since hit their stride after rejigging the 11-story, 75-unit property’s business model and a co-working lease with Industrious that was temporarily soured by the pandemic. The asset is generating more revenue than ever, Golden said.
The only problem is he and Wong can’t access their cash flow and claim in a lawsuit filed late last month that a lender that provided them $41 million, with the property serving as collateral, is holding their profits — more than $3 million — hostage in a separate account.
“We made sure no matter what happened, the loan was always paid on time. All the cash flow has gone to them, and they are not honoring the loan agreement to release the net cash flow after everything else is paid,” Golden told The Real Deal.
The mixed-use project — developed by the men separately from their @properties business — encountered some trouble early on in the pandemic. Wong and Golden had issued a master lease to co-living provider Quarters, whose German parent company ended up in bankruptcy, and Industrious was unable to pay its lease for a period due to work-from-home mandates.
Now, though, the issues with the co-working lease have been resolved, and the housing is being operated and leased as traditional apartments. Loan trustee Wells Fargo and special servicer LNR Partners, which were both named as defendants in the suit, have no more reason to continue holding onto money beyond what they’re owed in principal and interest each month, Wong and Golden said. Yet the funds have still been kept out of the landlords’ hands.
Through a spokesperson, LNR Partners declined to comment. Wells Fargo did not immediately respond to a request for comment.
The $41 million commercial mortgage-backed security loan was issued in 2018 to Wong and Golden, who described the asset’s debt as “low leverage” considering the building was recently appraised at $73 million, according to the lawsuit.
But LNR and Wells Fargo started hanging onto all of the property’s revenue in February 2021 after co-living company Quarters’ parent Medici, which had leased more than half of the building’s apartments to sub-tenants, defaulted on its master lease when it went into Chapter 7 bankruptcy and stopped paying rent to Golden and Wong. Under the loan agreement, revenue from the property would be transferred into an account controlled by the lender should such a triggering event occur.
Industrious also defaulted on its lease by failing to make full rent payments after the pandemic hit and many of its office sub-tenants stopped paying rent, according to the suit.
Those problems have since been resolved, though, and the property consistently generates more than enough revenue to cover expenses, with Industrious paying more rent than before the onset of the pandemic, and even more revenue coming in from the standard apartments than the co-living agreement was producing, according to the suit.
The property brought in $2.8 million in net cash flow last year, after its revenues paid off debt service and operating costs, loan data compiled by Morningstar shows.
The building’s 15,000 square feet of retail space is fully leased, and almost 95 percent of the residential space is leased. It generated more revenue in the first six months of this year than in the first half of 2019.
The lender and servicer has retained that extra cash in a separate account that now totals more than $2 million, the lawsuit alleges, and have refused to distribute the money to the building’s ownership despite their repeated requests. The lender and servicer have also retained about $1 million from a security deposit from Medici.
MCZ Development completed the building in 2018 in partnership with Golden and Wong before the brokerage heads bought out the firm’s equity in the property.
“This will be the only CMBS loan I ever do,” Golden said. “It is quite honestly, bewildering.”
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