CIM Group and Golub’s control of a big asset at the southern end of the Magnificent Mile is at risk. They face a fast-approaching maturity of an office tower loan for a property across the street from their high-profile condo conversion of the Tribune Tower at a tough time for borrowers.
A joint venture of Los Angeles-based CIM and Chicago-based Golub & Company snagged an extension until March to repay the $123 million debt tied to 444 North Michigan Avenue that they took out in late 2018 to fund their purchase of the 36-story building.
The lender, a Blackstone debt vehicle, was supposed to be repaid this month under the loan’s original terms, which included an initial maturity date of January 2022 and two yearlong extension options that were exercised, according to loan servicer commentary. The loan funded the CIM and Golub venture’s acquisition from Germany-based investor GLL Real Estate Partners.
But the loan is watchlisted, which is normally a sign that there’s a growing chance of default by the borrower.
Unless the building’s leasing performance turns around in short order or CIM and Golub agree to inject more money into it to hang onto the property, the Michigan Avenue property is likely one of the next to enter the distressed commercial real estate market amid a barrage of foreclosures and financial losses hitting downtown Chicago office landlords.
“This small loan represents a fraction of a percent of our real estate debt portfolio and has been paid down significantly over time,” a Blackstone spokesperson said. The borrower and lender are evaluating multiple potential resolutions to the debt.
While Blackstone is the lender and special servicer in the 444 North Michigan Avenue deal, it hasn’t been immune to the landlord’s side of the equation when it comes to Chicago office market woes spurred by the pandemic. Also in the River North neighborhood, Blackstone is working to sell the two-tower, 1.3 million-square-foot office property at 350 North Orleans Street, likely at a loss, after failing to refinance its $310 million loan in July.
Back on Michigan Avenue, Blackstone sold off a $45 million portion of the office building loan to investors in securitized real estate debts. It’s in a deal structure known as a collateralized loan obligation, which shields more information about the underlying property’s performance than traditional commercial mortgage-backed securities loans.
Golub declined to comment, and CIM didn’t return a request for comment.
The 524,000-square-foot building’s performance has declined since their acquisition a little more than five years ago, when it was 88 percent leased. It’s now 68 percent leased, according to loan commentary compiled by credit rater Morningstar.
The loan was originally set to mature in January 2022, but it came with two year-long extension options that have both been exercised, pushing the final maturity to this month, until Blackstone granted the two-month extension.
Because the loan included an adjustable interest rate — meaning the cost of debt service increased as federal officials tightened monetary policy — the building’s carrying costs started outstripping its net cash flow in 2022, loan data shows.
For 2022, the most recent data available, the debt service coverage ratio fell to 0.85. It’s a measure of the property’s net cash flow compared to the cost of servicing its loan, and any mark below 1 means the property owner is losing more money on paying for the debt than the property is bringing in with rent.
The debt service coverage was healthier from 2020 through 2021, at around 1.5, as the property brought in around $8 million in net cash flow in all three of those years. That figure decreased to $4.5 million in 2022, Morningstar loan data shows. More than 200,000 square feet in the building is being advertised as available to rent.
The property sits across Michigan Avenue from the Tribune Tower, where CIM and Golub have drawn high-profile condo buyers since converting the newspaper’s former office building into homes.
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