Orion’s big loss, Accesso’s missed loan add to pile of suburban office trouble

Suburban Chicago office landlords are inching toward the market’s bottom.

In Schaumburg, bargain-hunter IndusPAD has closed on another purchase, this time for the staggeringly low amount of about $7 per square foot. And in Naperville, Accesso Partners is nearing a default on a nearly $20 million loan.

Together, their situations prove that Chicago’s office market woes are not confined to downtown. They add yet another data point to the string of distress straining borrowers and providing developers chances to pursue turnarounds.

IndusPAD, a Massachetts-based firm that has made a habit of snagging distressed properties, has taken on multiple opportunities in Schaumburg. Most recently, the firm bought a fully vacant 178,000 square-foot office complex at 955 American Lane for $1.3 million, Cook County records show. The seller was Phoenix-based Orion Office REIT.

The property was previously leased by Experian until the credit bureau vacated the space earlier this year. The building will join IndusPAD’s roster of Schaumburg office complexes that the landlord has since collectively rebranded as Braveheart.

The American Lane deal follows IndusPAD’s purchase of the Braveheart campus for less than $20 million last year. At the time, it was a mostly vacant suburban 490,000 square-foot property known as Windy Point. The seller, Bridge Investment Group, offloaded the asset for at least $54 million less than what it paid to buy it in 2018.

IndusPAD specializes in developing and managing mixed-use assets that can cater to a variety of tenants that may need space for manufacturing, research and innovation, office or light industrial uses.

The American Lane property last sold in 2010 for $30 million, representing a massive loss in value from when a predecessor of Orion Office bought the building. Representatives of Orion did not respond to requests for comment. IndusPAD was unable to comment by press time.

John Homsher and Alissa Adler of Colliers represented the seller. Homsher said he sees signs that an office market recovery is picking up in the suburbs.

“While the (Central Business District) is making strides to encourage the repurposing of obsolete office buildings, many projects are cost prohibitive or are not good candidates,” he said. “Suburban office sales continue to outpace sales in the CBD.”

He added that vacancies left by corporations downsizing suburban office campus spaces present opportunities for redevelopment that might reduce the total amount of vacant office space in the market. 

There’s several big office-to-industrial park conversions underway in suburban Chicago. And the Schaumburg property is far from the only suburban office building impacted by the challenging market.

In Naperville, Florida-based Accesso Partners is facing an “imminent default” on an $18 million CMBS loan for the 211,000-square-foot office building at 215 Shuman Boulevard, according to loan servicer commentary compiled by DBRS Morningstar. The loan matured in November with more than $16 million still owed, and special servicer LNR Partners is now overseeing the debt workout.

Accesso, which paid $24 million for the building in 2013, couldn’t obtain new financing by the deadline, according to LNR. The landlord is hanging onto the property in hopes of a resolution.

“We have just begun conversations with the special servicer regarding an extension of the current loan, and are optimistic we will come to an agreement,” Accesso said in a statement. “The property generates sufficient cash flow to service the existing debt.”

That’s true, but loan data shows the property’s cash flow has been on the decline since at least 2018. Back then, it was 91 percent leased and brought in $2.5 million in net cash flow, more than twice what was needed to cover its yearly debt service.

However, in 2022, it was down to 69 percent leased. Its net cash flow declined to $1.5 million, leaving a smaller debt service coverage ratio of 1.36 for the year.

The property also has a big lease expiration coming up next year. Travelers Indemnity Insurance Co. rents 108,000 square feet in a deal that runs through June. It remains unclear from loan data what the company plans to do at the end of the lease term.