Any Chicago real estate players who survived 2023 are likely heading into the new year with some fresh wounds, or at the very least some post-traumatic stress.
The last 12 months have been defined by a brutal market driven by rising interest rates, especially for office landlords. The flow of housing transactions dried into a trickle, too, leaving brokers and agents thirsty for more deal volume.
A wave of foreclosure litigation hangs over major office properties in downtown Chicago and its suburbs. No office transaction topped $50 million in the Loop, for the first time in more than a decade. The market slowdown forced one of the city’s top residential agents to cut staff, and in the process got caught making an inappropriate comment.
The city’s future development path is in question as megaproject Lincoln Yards’ financial conundrum remains unsolved.
But open cuts eventually scar over, and some bright spots this year contend a real estate recovery is already underway in the Windy City.
Bally’s opened the city’s first casino in the run up to construction of a $1.7 billion permanent entertainment complex in the Fulton River District. Google is moving forward with its plans to overhaul the James R. Thompson Center in the Loop, with developers Mike Reschke and Quintin Primo at the helm.
The gravity of Fulton Market strengthened, as the neighborhood’s transformation played an increasing role in shaping the city.
Here’s the news that produced the most industry chatter during real estate’s tough year.
Chicago Board of Trade Building seized, Jan. 11
In a transaction that served as foreshadowing to the gloomy year ahead for office landlords, Apollo Global Management seized this landmark building from a joint venture of Glenstar and Oaktree, via deed in lieu of foreclosure.
New York-based Apollo held the senior loan on a $256 million debt package taken out by Glenstar and Oaktree. The 44-story office tower was a high-profile casualty of the pandemic’s impact on the office market. The loss on the debt contributed to a swell of downtown office distress along LaSalle Street.
Apollo plans a resurgence of the central Loop, investing in capital improvements with the help of Chicago developer R2.
Financiers Sour on Lincoln Yards, Aug. 18
As lenders JP Morgan and Dallas-based Lone Star Funds grew disillusioned with progress on the $6 billion Lincoln Yards plan, developer Sterling Bay started looking for backups on two fronts to reboot the project.
Sterling Bay attributed its delays to the slow permit issuance and a lack of municipal support during the tenure of former Mayor Lori Lightfoot. The company accused her administration of being slow to approve a deal to fund essential infrastructure on roads and bridges in the area.
In response to the setback, Sterling Bay approached the Chicago Teachers Pension Fund with a proposal to inject $300 million into the project to replace its existing backers JP Morgan and Lone Star, at discounts from their current investments. But the teachers fund rejected the opportunity, sending Sterling Bay back out to search for new financial partners.
Sterling Bay CEO Andy Gloor has expressed optimism in Mayor Brandon Johnson, who was elected in April, and has sought Johnson’s support for the project.
Menashe Properties sets record $45M office deal, Sept. 23
Chicago’s commercial real estate market had no office deals exceeding $50 million in the Loop in 2023, the longest dry spell since the Great Recession.
The lack of big deals mirrored struggles in the nationwide post-pandemic office market, as rising interest rates posed obstacles for transactions and demand remained low.
Oregon-based Menashe Properties bucked the trend, acquiring a 29-story Loop office tower for almost half the $88 million loan its former landlord Accesso Partners took out from Morgan Stanley in 2019.
Despite the haircut, the deal was a sign of life amid a standstill in office deals. The contrarian play pushed back on claims that Chicago’s crime and property taxes will prevent a turnaround.
Leigh Marcus on hot mic, reported Sept. 11
Leigh Marcus, one of Chicago’s most prominent residential brokers with @Properties Christie’s International Real Estate, was caught making a shocking comment while discussing laying off staff during the spring market downturn.
Marcus, speaking while unaware he was being recorded, suggested terminating a staffer who had taken unpaid maternity leave, stating his firm should act “before she gets pregnant again.” The comment, made on a phone call circulated within the brokerage in March, led to a significant staff fallout and a statement of regret from Marcus.
Johnson ramps up transfer tax fight
Following a contentious election in which few real estate players were on his side, Chicago Mayor Brandon Johnson followed through on one of his central campaign promises in short order. Within months of his election, he ushered through City Council a proposal to quadruple the city’s property transfer tax on big real estate deals.
Voters will decide the fate of the measure in the March primary election.
While dubbed a “mansion tax,” it faces opposition from the real estate industry, especially commercial players. They argue it could deter investments and negatively impact property values while many investors are already struggling with waning demand for offices and surging interest rates.
Foreclosures hammer office landlords
Among the most prominent borrower defaults were the $230 million loan at 161 North Clark Street, a 49-story Loop office building owned by a group led by Korea Post.
Another significant case was the foreclosure on 200 South Wacker Drive, a 40-story office tower purchased by Manulife in 2013 for $215 million and refinanced in 2019 with a $163 million loan from the Bank of China.
The Riverway office complex, a suburban property near O’Hare Airport, faced foreclosure following Adventus Realty Trust’s default on a $128 million CMBS loan from JPMorgan Chase Bank. Adventus may have to surrender its entire suburban office portfolio, which includes assets in Chicago and Atlanta.
Also in the suburbs, Schaumburg Towers, purchased by American Landmark for $88 million in 2018, was hit with foreclosure on its $96 million mortgage.
Other borrowers, such as Mike Reshke, paid down big portions of their previous debts as they reached maturity this year and took out smaller financial packages against their assets. The Aon Center’s landlord 601W Cos., negotiated loan extensions. Nobody wanted to, or even could, borrow at this year’s higher cost of capital to replace old debt.
Condo deconversions blow up, reported June 7
Strategic Properties of North America, a specialist in bulk condo buys that turns buildings into rentals, saw its biggest deal ever flame out right before reaching the closing table.
Strategic, led by Yitzy Klor and Saul Kupperwasser, had its $190 million deal to convert Ontario Place condos into apartments terminated by the property’s condo board, after the firm failed multiple times to secure funding to close the deal.
Another of its deals could be headed for the same fate.
The condo owners at 200 North Dearborn Street are upset with Strategic’s slow progress on closing a $96 million sale they agreed to more than a year ago. A recent change in the makeup of the condo board could spur a similar sale cancellation if Strategic doesn’t get its act together.
Bears draw suburban suitors amid tax fight
The NFL’s Chicago Bears are keeping their options open amid a battle over the property taxes that Cook County Assessor Fritz Kaegi and local school districts believe it should pay for Arlington Heights.
While a $5 billion stadium and commercial district in the northwest suburb looked like the team’s sure plan after it closed its $197 million purchase of the racecourse from Churchill Downs, Kaegi’s $192 million valuation gave the Bears pause. The valuation was almost 465 percent higher than the previous valuation of $34 million.
The team is considering Chicago’s pleas to stick to the city. Ideas include locating the stadium south of Soldier Field or a revamp to put a retractable dome atop the team’s longtime home.
Suburbs including Naperville, Aurora and Richton Park have pitched the team on coming to their towns. The Bears signaled this summer they were looking at other options, stating that Arlington Heights is “no longer our singular focus.”
Meanwhile, demolition of the racetrack structures proceeded and is nearly complete as tax bill negotiations play out.
Read more
Commercial
Chicago
Check out Cook County’s biggest real estate loans of 2023
Politics
Chicago
How Chicago landlords get drilled by Johnson’s transfer tax tweaks