601W’s Mark Karasick talks haggling loan extensions in Chicago

Trophy office owner looks to beat the distress clock through strategic financing

601W’s Mark Karasick Talks Office Loan Extension Haggles
500 West Madison, 1 South Wacker and 200 East Randolph Street (Getty, JLL, Loopnet)

Mark Karasick’s 601W Companies punched another ticket to safety from the Chicago office market’s fallout — he hopes.

By bringing in $21 million in new equity raised from investors, the New York-based landlord of some of the Windy City’s biggest office assets secured an extension on the $310 million debt tied to its 43-story tower at 1 South Wacker Drive.

It’s a costly price to follow the real estate industry’s motto amid the market downturn — “survive until 2025” — and emblematic of the negotiations playing out between big landlords and their lenders as debts come due at a historically bad time for the office sector.

However, Karasick’s firm, which he manages along with Michael Silberberg, Harry Skydell and Victor Gerstein, navigated the debt maturity at not only One South Wacker but also his firm’s East Loop 83-story trophy, the Aon Center, all without getting exposed to new financing at higher rates.

Yet 601W hasn’t fully dodged foreclosures since the pandemic bludgeoned the office market — it’s currently contesting a lender’s attempted takeaway of the Civic Opera Building in Chicago — and there’s no guarantee of lower rates in 2025.

Still, Karasick laid out what’s worked so far to make lenders comfortable with maturity extensions: having more money to put toward a property helps.

“If you’re willing to ask [a lender] for something you should be willing to give as well, and we do that,” Karasick said. The One South Wacker extension — granted by the bondholders of the $310 million CMBS loan that was originated by Blackstone in 2018 — pushes the maturity out to 2026, which, he said, “these days is a lifetime.”

In addition to 601W’s injection of $21 million in equity into the 1.2 million-square-foot Wacker Drive deal, its leasing has further fortified the asset against the greater challenges facing the office market nationally and within Chicago’s Loop. Earlier this year, the building scored a lease expansion of its largest tenant, renewable energy and natural gas developer Invenergy, which nearly doubled its footprint up to around 180,000 square feet.

The $21 million will go toward new leasing costs, such as broker commissions and tenant improvements, and Blackstone is putting another $46 million toward those costs, in addition to $28 million it already had in reserves to put into the building. Blackstone originated the loan on the property before the debt was sold off to investors in commercial mortgage-backed securities.

“This particular building was ready for primetime when there was no primetime because people weren’t out in the market,” Karasick said. The building is over 80 percent leased now, he said, up from 60 percent at the end of 2021, before the Invenergy expansion, loan data collected by Morningstar shows.

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Floating interest rates tied to a $260 million portion of the debt on the building squeezed its revenue stream last year as rates rose. The debt costs started to outstrip the $10 million in net cash flow its office rents generated in 2022, loan servicer commentary said. The loan originated with an interest rate floor of 3.8 percent and a rate cap of 6.05 percent, loan data shows. Karasick didn’t say how the extension impacted the debt’s interest rate.

Extensions like the one at One South Wacker appear to pay off, according to JD Parcheta, vice president at Telos Group, the brokerage representing 610W at the building.

“The first questions that come from tenants or the broker representing them is what is the financial health and stability of the building, and it’s the right question to be asking,” Parcheta said.

Karasick said 610W faced an “enormous challenge” with the Aon Center. In June, the company received a three-year maturity extension for its $536 million in senior debt on the property. The company updated its lobbies and spent $6 million on a new main entrance. It also upgraded the building’s amenities and extended the lease of its namesake tenant, insurer Aon, by another two years through 2030; although the lease size was cut 25 percent, from 400,000 square feet to 300,000.

“Leasing is a challenge that we happily accept,” Karasick said.

His firm isn’t alone isn’t alone. KBS Realty Advisors is hanging onto Accenture Tower in downtown Chicago, along with its $306 million in debt. The loan was originated by US Bank in 2020 while an array of other lenders also contributed to the capital stack.

The California-based landlord had its borrowing capacity reduced for the entity that owns the 40-story, 1.5 million-square-foot Accenture Tower at 500 West Madison Street. That move was made in connection with a deal to notch a 12-month extension to pay off the rest of the loan on the property.

KBS in regulatory filings said the previous terms of the loan totaled $375 million, with $281.3 million considered term debt, and $93.7 million of revolving debt.

Under the extension, the total was reduced to $306 million, and KBS said there was not a large paydown of the debt near this month’s initial maturity to score the extension. Of that, $229.5 million was term debt and $76.5 million was revolving debt.

Read more

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Inside 601W’s fight to keep Aon Center
1 South Wacker Drive and Invenergy's Michael Polsky
Big lease expansion on Wacker Drive could ease pressure on 601W
KBS on Tight Timeline for $375M Accenture Tower Loan Extension
Will KBS get an extension on $375M Chicago office tower loan?
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