Magnolia, Goldman Sachs watchlisted on $67M Oak Park multifamily debt

Cash flow evaporated at 21-story Vantage Oak Park, Chicago suburb’s tallest building

Magnolia, Goldman Sachs Watchlisted on $67M Oak Park Debt
Magnolia Capital's Maxwell Peek with 150 Forest Avenue (Magnolia Capital, Google Maps, Getty)

Surging interest payments on floating-rate debt are sucking up rent revenues for Oak Park’s tallest building.

A loan servicer watchlisted a $67 million debt on the 270-unit Vantage Oak Park apartments, at 150 Forest Avenue, which is owned by a joint venture of Goldman Sachs and Maxwell Peek’s Chicago-based Magnolia Capital.

The loan was watchlisted — a move lenders make when a debt enters potentially troubling territory — as interest payments grew, according to commentary from the servicer compiled by DBRS Morningstar.

The landlord is now bringing in less revenue than the cost of its debt service, the servicer said.

CBRE’s capital markets division originated the loan to Magnolia and Goldman in 2018, when their joint venture purchased the property for a little less than $103 million, public records show. That loan was later pooled with debts tied to other commercial properties and sold off to investors in mortgage-backed financial instruments, making public some details about the Oak Park building’s debt.

Goldman and CBRE, which continues to sub-service the loan, declined to comment, and Magnolia did not return requests for comment. Loan servicer Wells Fargo did not return a request for comment.

The loan is among many in which borrowers who took out floating-rate loans while interest costs were historically low are getting battered as federal officials have boosted rates to tame inflation. Several multifamily syndicators — investment firms that raise money to buy real estate from outside investors — are scrambling to survive as their loans face the prospect of being watchlisted or handed over to a special servicer as interest rates cut into their revenues.

Sign Up for the undefined Newsletter

The Oak Park loan isn’t set to mature until 2028. And while Vantage Oak Park’s performance this year hasn’t yet been fully documented by Morningstar, last year’s performance shows the impact of rising rates on properties stuck with floating-rate debt.

The 21-story building, which was completed in 2016, brought in $4.3 million in net cash flow in 2021 and 2022, Morningstar data shows. But its debt service costs surged last year, bringing its debt-service coverage ratio — a measure of a property’s income compared to its debt costs — to 1.82 for 2022, down 42 percent from 3.12 in 2021. The loan was watchlisted in August.

A CBRE multifamily brokerage team was hired to market Vantage Oak Park for sale last year, but it hasn’t traded, and the listing is no longer active on the firm’s website. The offering was made following a fight over property taxes between the landlord and Cook County Assessor Fritz Kaegi.

Kaegi two years ago tried raising the property’s assessed value — and thus the amount it would pay in taxes — to $90 million, but the landlord appealed the valuation to the Cook County Board of Review, which agreed a reduction was warranted and chopped the taxable value to $54 million.

Even with the successful appeal, the property’s tax bill has shot up 88 percent since 2018 to a little more than $2.3 million, public records show. It’s a result of the assessor’s attempts to raise the burden of commercial property owners and of local governments increasing their tax levies.

So far, the landlord’s plan to get off the lender’s watchlist remains unclear.

Read more