More Loop office landlords near defaults on $51M in loans

Special servicer LNR Partners is now overseeing debts owed by art dealer Ivor Braka, Alvarez & Marsal

More Loop Office Landlords Near Defaults on $51M in Loans
332 South Michigan Avenue and Alvarez & Marsal's Tony Alvarez with 205 W. Randolph, Chicago (Google Maps, Alvarez & Marsal, Getty)

Ivor Braka and fellow downtown Chicago office landlord Alvarez & Marsal are staring down some ugly debt pictures.

Braka, who has ties to New York-based Aetna Realty, owes millions on one of three loans tied to Loop office buildings whose landlords are nearing defaults or were otherwise flagged by lenders for their eight-figure loans in recent weeks, as financial distress keeps roiling Chicago’s core business district in the wake of the pandemic.

Braka got caught up in the market’s turmoil back in 2004, when he paid just under $11 million on top of assuming an $18.5 million loan to buy 332 South Michigan Avenue, a 326,000-square-foot office building. Now, the landlord is facing “imminent default due to cash flow issues” on a $33 million loan he took out in 2016 using the property as collateral, according to loan servicer commentary compiled by DBRS Morningstar. The loan wasn’t scheduled to mature until 2026, and the Michigan Avenue property was appraised at more than $56 million when the debt was issued.

It was packaged up with other commercial real estate debts and sold off to investors in financial instruments, making details of the property’s performance public.

He’s not alone. At 205 West Randolph Street, the real estate arm of professional services firm Alvarez & Marsal is on a similar track and set to default due to cash flow problems, according to LNR Partners, the special servicer of the 199,000-square-foot property’s nearly $19 million debt. LNR began overseeing the debt this month, loan data provided to Morningstar shows. 

Alvarez is nearing default on the debt that was taken out by an entirely different borrower in 2014. Alvarez took on the property for $29 million, when it was sold by Michigan-based Farbman Group, the original borrower in the deal. An Alvarez affiliate assumed the property’s nearly $19 million in debt as part of Farbman’s sale, and the loan is scheduled to mature in early 2025.

Representatives of Alvarez & Marsal did not respond to requests for comment, nor did Braka. Both loans are under special servicing by LNR Partners, which also didn’t return requests for comment.

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Alvarez is another downtown Chicago office deal that’s worrying its creditor.

A lender that gave $35 million in 2015 to an Alvarez affiliate that owns 205 West Wacker Drive has watchlisted the loan, which was originated in 2015. Watchlisting a debt is a move usually made when there’s a growing chance the lender doesn’t get fully repaid.

Both 205 West Wacker and 205 West Randolph are 23-story office buildings, although the Wacker property has a larger footprint at 265,000 square feet. When Alvarez & Marsal bought the Randolph property in 2017, smaller, vintage buildings had been rising in value, local media reported.

But both that building and the Wacker Drive property have struggled to keep tenants. In 2019, the Randolph property was 80 percent occupied, before it came down to 63 percent leased last year, according to Morningstar data. It brought in just $100,000 in net cash flow last year, and cost far more for Alvarez to service its debt than the rental revenues it generated, Morningstar shows. Higher property tax costs were partly to blame, according to loan commentary.

At the Wacker Drive property, Salesforce’s exit contributed to its financial issues. The firm was a tenant in the building until leaving early in 2021 with a plan to move into the newly opened Salesforce office tower at Wolf Point overlooking the Chicago River.

While Salesforce paid a termination fee of $582,000, the building’s occupancy fell to 60.5 percent. Alvarez did a good job of refiling the space, and brought its occupancy back up to 75 percent as of the end of last year, according to loan servicer commentary, but it’s expected to decline again with the planned departure of two tenants, according to the loan servicer.

Last year, the Alvarez-owned building took in less than 70 percent of the net cash flow it needed from rent to cover its debt service, loan data shows.

Editor’s note: This story has been updated to correct the identity of the landlord of 332 South Michigan Avenue and to add that the landlord assumed the property’s loan in 2004.

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