Sterling Bay, JPMorgan at Odds with Wells Fargo on Office Debt

Sterling Bay and JPMorgan Asset Management have encountered another Chicago real estate hurdle they’re struggling to clear together, this time in Fulton Market.

A venture of the Chicago-based development firm and JPMorgan’s investment arm, which owns the 19-story office building at 333 North Green Street, is butting heads with Wells Fargo over the property’s $230 million loan, according to several sources familiar with the matter.

Wells Fargo provided Sterling Bay $182 million in 2018 as a construction loan on the 553,000-square-foot property. It refinanced the debt in January 2020 — right before the pandemic picked up steam — with a $230 million debt package from the same lender.

The latest loan was set to mature in January 2023, public records show. It got a one-year extension. As maturity approached this year, Wells Fargo requested the landlords pay down tens of millions of dollars before another extension. Multiple sources pegged Wells Fargo’s request at a little less than $40 million.

JPMorgan and Sterling Bay balked at the figure their lender requested. They have been willing to pay down some of the debt to secure the later maturity, but the parties remain far apart on resolving the matter.

Now, Wells Fargo, Sterling Bay and JPMorgan are looking at other options to address the debt, which is past its maturity date without being fully paid off, according to sources without direct involvement in the deal who are nonetheless familiar with the situation.

Those potential paths include exploring a sale of the building, or Wells Fargo taking control of the property’s ownership.

Sterling Bay seemed set to stick with a poker face for now, based on comments that side-stepped a number of specific questions from The Real Deal.

“We continue to believe in the value of this asset, notwithstanding the challenging market conditions that the real estate sector is experiencing,” a Sterling Bay spokesperson said. “We are encouraged by our continuing dialogue with the interested parties and believe that we will find a path forward that is agreeable for all involved.”

Wells Fargo and JPMorgan declined to comment.

The ongoing negotiations mark a turn from an earlier strategy as interest rates roil the market. Sterling Bay and JPMorgan in the spring of 2022 were looking into selling the building but pulled it off the market as rates began rising.

The building is also in a different category of other distressed office towers in Chicago amid foreclosure suits or discounted sales, as other such lender battles have involved older buildings that aren’t close to fully occupied.

When it considered selling, Sterling Bay highlighted the property’s strong performance with leasing, as it was fully occupied, CoStar News reported at the time. Plus, Fulton Market remains Chicago’s hottest office market, drawing last year’s only new construction loan for the asset class in the city.

This isn’t the first time JPMorgan Asset Management and Sterling Bay have run into obstacles on their Chicago development ventures. Last year, JPMorgan declared it wanted to exit its financial position in the Lincoln Yards megaproject that Sterling Bay is leading, with a plan to redevelop a 53-acre stretch along the Chicago River between Lincoln Park and Bucktown.

That, along with a similar move made by Lincoln Yards’ other financial backer, Texas-based Lone Star Funds, sent Sterling Bay back into the market to search for capital partners to help advance the project — a hunt that is ongoing as Kayne Anderson sizes it up for possible investment.

Furthermore, JPMorgan’s investment arm is marketing a West Loop apartment tower for sale, shortly after it took a massive financial hit in a recent sale of the apartments at 850 North Lake Shore Drive to Miami-based Crescent Heights.