Chicago’s commercial real estate market broke records this year but not in a good way.
Countless landlords defaulted on loans due to the rise of remote work, high interest rates and a tough lending market, all amid office vacancy stats that continued creeping up to all-time highs throughout 2023.
Most of Chicagoland’s high-profile lender lawsuits were tied to office buildings, but a few retail, hotel and multifamily landlords made their way through Cook County foreclosure court, as well. Many other real estate borrowers otherwise avoided legal proceedings through friendly givebacks of their properties to creditors.
Loop and suburban office buildings were hit particularly hard, as they’ve gotten passed up by tenants in the market who’ve opted to lease newer commercial spaces in buzzy Fulton Market, the only area of the city where a new major office development broke ground this year.
Among the biggest defaults in the Chicago area were a $230 million foreclosure on North Clark Street and a string of troubled properties along LaSalle Street, the city’s historic financial corridor.
While some borrowers and lenders are still jousting over how to handle a few big foreclosure disputes started earlier during the pandemic — including at the Civic Opera office building and the Palmer House hotel — The Real Deal tallied the largest newly filed foreclosures lawsuits in the Chicago area in 2023. Properties are listed below along with their initial mortgage amount. Some foreclosure lawsuits were filed for less than the initial mortgage if the loan was partially paid off. Other lawsuits were filed for more than the original loan amount due to interest and other fees.
161 North Clark Street | $230 million
French lender Societe Generale filed for foreclosure on a Loop office building after trying to sell the debt it issued on the property.
The 49-story building at 161 North Clark Street spans more than 1 million square feet and was owned by a group of investors led by Korea Post, the national postal service of South Korea.
CBRE Investment Management bought the building on behalf of the Korea Post fund from Tishman Speyer for $331 million in 2013, according to Cook County records. It was 93 percent leased at the time of the purchase, but took a turn for the worse since the landlord refinanced in 2018 with a $230 million mortgage from Societe Generale.
At the time of the foreclosure, the entire $230 million principal of the loan was unpaid, as well as $5.3 million in accrued interest and $1.2 million in default interest.
200 South Wacker Drive | $163 million
Manulife prepared to take a massive loss on a 762,000 square foot, 40-story office tower when the company’s lender filed for foreclosure in October.
The company purchased the office tower at 200 South Wacker Drive in 2013 for $215 million. Manulife refinanced in 2019 with a $163 million loan from the firm’s lender, the Bank of China’s Chicago branch.
In late 2022, Manulife paid down a portion of the loan in exchange for a yearlong extension on the maturity date of the loan. Bank of China reduced the principal loan amount to $151 million as part of the extension. The landlord listed the property for sale shortly after.
The building’s riverfront location in a southwest corner of the Loop was thought to be a potential draw for buyers, and JLL was marketing the property as 82 percent leased with a net operating income of nearly $12 million.
Its occupancy had declined from 96 percent when Manulife bought it.
After the building sat on the market for a year, the Bank of China filed for foreclosure.
Riverway office complex | $128 million
A major suburban landlord had several loans in risky positions in 2023, including one of its biggest on an 870,000-square-foot office complex near O’Hare Airport.
The Canadian borrower, Adventus Realty Trust, got a $128 million CMBS loan originated by JPMorgan Chase Bank to acquire the 870,000-square-foot Riverway office complex in 2016.
The four-building asset at 9399 West Higgins Road in Rosemont was about 68 percent occupied as of the first quarter of 2023, down from 91 percent in 2019, according to a report from Trepp.
In 2020, the property lost its second-largest tenant, Central States Pension Fund, which had leased about 191,000 square feet.
The loan entered special servicing this May after the firm stopped funding shortfalls and asked about turning the property over to the lender, according to a report that LNR Partners made to credit ratings agency Morningstar.
In June, Adventus failed to pay the monthly debt service. The lender acted quickly to foreclose on the mortgage and get an order directing the sale of the property to pay off the debt, according to a lawsuit filed in Cook County court in July.
Special servicer LNR Partners brought the suit on behalf of lender JPMorgan Chase and trustee Wilmington Trust, court records show. Adventus’ unpaid balance was about $114.6 million, according to the suit.
The landlord is struggling while facing several other foreclosure lawsuits for suburban Chicago assets, and sought bankruptcy protection in Canada.
Schaumburg Towers | $96 million
Skokie-based American Landmark, helmed by Yisroel Gluck, defaulted on its $96 million mortgage on the 20-story, 890,000-square-foot Schaumburg Towers at 1400 and 1450 American Lane, lender Prime Finance said in a complaint filed in Cook County court in August.
The foreclosure suit said American Landmark still owed $83M in principal and interest, plus fees and fines.
Landmark had listed the property with Cushman & Wakefield in January and failed to find a buyer. While the property didn’t have an official asking price, it was expected to draw bids between $110 million and $120 million, people familiar with the offering said at the time.
American Landmark — whose head Gluck is best known locally for being part of the group of investors that sold Chicago’s Willis Tower to Blackstone for $1.3 billion in 2015 — paid $88 million for Schaumburg Towers in 2018. The suburban complex was less than half occupied at the time. After purchasing the property, the firm put $20 million toward renovations to attract new tenants.
The repositioning was at least somewhat successful — the complex’s occupancy was up to 78 percent as of February, outperforming the suburban Chicago average. But it wasn’t enough to save the property as interest rates rose alongside the popularity of work-from-home schedules.
Continental Towers | $85 million
After losing a major tenant, the landlord of an office tower in Rolling Meadows hit a dead end and faced foreclosure. Philadelphia-based private equity firm Rubenstein Partners’ $85 million CMBS loan taken out on the property was watchlisted in February and moved into special servicing in May.
Tech giant Panasonic, which had occupied about 47,000 square feet at Continental Towers, opted not to renew its lease when it expired late last year, per a report Wells Fargo made to Morningstar.
The final blow came in August when special servicer Rialto Capital Advisors filed an $82 million foreclosure lawsuit.
Rubenstein paid about $125 million for the property in 2018, according to past news reports. The complex spans nearly a million square feet across three 12-story buildings and had struggled to retain tenants in the wake of the pandemic. When the property’s loan was watchlisted in February, Wells Fargo, the master servicer, put the property’s occupancy at about 64 percent.
29 South LaSalle Street | $74 million
In the only multifamily DLC Residential, a prominent developer in southern Florida’s Miami-Dade area, allegedly failed to pay back a construction loan on a 13-story apartment complex that it had converted from a vintage office building a few years ago.
The 216-unit property at 29 South LaSalle Street was 72.2 percent occupied at the time of the foreclosure, down from nearly 90 percent occupied when it opened in 2021.
The foreclosure was a rarity for downtown, where apartment buildings have fared well amid the pandemic compared to the surrounding office buildings.
An affiliate of Barings filed the foreclosure suit against DLC Residential alleging the company failed to pay back a construction loan on the property.
The foreclosure suit added to a list of properties along LaSalle Street facing similar legal issues stemming from unpaid debts. Those properties, though, are mostly offices, and include 1 and 30 North LaSalle, 10, 19 and 135 South LaSalle and 105 West Adams Street.
The Chicago Board of Trade Building at 141 West Jackson Boulevard narrowly avoided foreclosure in January when Apollo Global Management took control of the property from a joint venture of Chicago-based Glenstar and Los Angeles-based Oaktree Capital Management in deed-in-lieu of foreclosure agreement.
The Jewelers Building | $65 million
Lender John Hancock Life Insurance filed a complaint against Canada-based Dorchester Corporation over Chicago’s iconic Jewelers Building in July. The filing came just days after the 40-story office tower at 35 East Wacker Drive was listed publicly for sale.
Boston-based John Hancock issued the loan in 2013 and it matured July 1, according to court documents. In April, Dorchester informed John Hancock that it had paid about $1.3 million of the $2.3 million due in property taxes and other charges, which constituted an event of default under the terms of the mortgage, the foreclosure suit said.
Dorchester had hired Draper & Kramer to market the building to potential buyers, pitching it as an opportunity for an office-to-residential conversion, according to May news reports. There wasn’t a specific asking price, but Dorchester was aiming to land a deal that would allow it to pay off its $51 million in debt before July 1.
With no takers, Dorchester faced a foreclosure instead.
3800 Golf Road, Rolling Meadows | $42 million
Ares Management, the New York-based alternative investment firm named after the Greek god of war, filed a foreclosure lawsuit against a joint venture of John Grassi’s Spear Street Capital and Switzerland-based Partners Group.
Together, the pair owned a 483,000-square-foot building in Rolling Meadows, and Ares alleges they defaulted on a $30 million loan on the property, which they borrowed weeks before the start of the pandemic.
In a complaint filed in Illinois federal court, Ares contended that Spear Street and Partners Group failed to pay off practically any portion of a loan that was due at the beginning of the year.
The Federal Aviation Administration had intended to lease around 116,000 square feet in the Rolling Meadows property in its move from a Des Plaines building, but those plans were scuttled, and the FAA has since struck another lease in Rosemont.
After the foreclosure suit was filed locally based industrial real estate investor Brennan Investment Group came forward with a $100 million plan to demolish the Rolling Meadows office building and construct a new logistics campus in its place. The village has been receptive to the idea.
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1900 and 1911 South Sangamon Street | $33 million
Ready Capital initiated foreclosure proceedings in April against Chicago-based Condor Partners, the owner of a two-building property at 1900 and 1911 South Sangamon Street.
The move came several months after DBRS Morningstar reported that the $33 million mortgage on the property was under water.
Condor, a real estate investment and development firm, renovated two 100-year-old buildings in the gentrifying Pilsen neighborhood southwest of the Loop into commercial office space starting in 2017.
The loan originally matured in December 2021, and while Ready Capital gave Condor a short-term extension, the lender ultimately opted to explore foreclosure and other strategies to work out the debt, according to Morningstar.
833 West Jackson Boulevard and 322 South Green Street | $33 million
Affiliates of James and Andrew Vaccaro, members of a west suburban family whose real estate assets are operated by Chicago-based Crayton Advisors, secured a $33 million loan in 2018 from NXT Capital for these two West Loop office buildings.
At the time, John Abell, managing partner for Crayton, told The Real Deal he had further plans for expansion in the West Loop area. His vision at the time was to acquire the office buildings along Green Street and build more.
Instead, the firm ended up facing a $36 million foreclosure suit filed in November from its current lender for the two buildings at 833 West Jackson Boulevard and 322 South Green Street. The lender, an affiliate of Aflac, bought the debt from NXT in 2021.
Abel said the loan — which the suit says requires the borrowers to pay back $36 million after fees and interest — came due at a time when capital was unavailable for many landlords seeking debt.