Michigan Avenue landlord hit with $33M foreclosure

Add Ivor Braka’s historic building across from the Art Institute of Chicago to the city’s pile of office properties set to be seized by lenders.

LNR Partners  — the Starwood-owned Miami Beach-based loan servicer giant for commercial mortgage-backed securities — is pursuing foreclosure on a $32.5 million loan against 332 South Michigan Avenue. LNR represents bondholders in the debt, which comes to a little under $93 per square foot and was packaged up with other loans against commercial property and sold off to investors. The suit was filed this week in Cook County court.

The 20-story building completed in 1910 is owned by an affiliate of Braka, who has ties to New York-based Aetna Realty. It holds 350,000 square feet of offices across the first 14 floors, while the top six floors consist of 75 luxury condos, which were not a part of the collateral for the loan. The condos were completed within the building by a previous owner in 2000.

The delinquent loan was taken out by an LLC that shares an address with Aetna Realty in 2016, when the property was 83 percent leased and appraised at more than $56 million.

But it’s likely worth far less than that today, as remote and hybrid work eat into demand for downtown Chicago real estate, and interest rate hikes erase property value. It’s far from the only distressed CMBS deal in the Windy City, where three-quarters of all its CMBS deals are either in default or at risk of default, according to a KBRA study published earlier this year.

Braka’s property didn’t bring in enough revenue to cover the costs of its debt last year, falling far short of break-even, loan data compiled by Morningstar Credit shows.

Neither Aetna Realty representatives nor an attorney for LNR returned requests for comment.

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Like many other office landlords, Braka’s venture got burned by a 50,000-square-foot lease to WeWork, originally struck in 2015. The coworking giant shuttered its location in the Michigan Avenue building in 2022, and the landlord replaced WeWork with coworking provider Regus last fall, right before the owner ran into cash flow issues and could no longer afford the debt service.

The property’s landlord has been late on loan payments for more than four months, as it hasn’t paid the monthly dues since December, records show. The loan wasn’t scheduled to mature until October 2026.

Braka’s U.S. Realty, the parent of Aetna Realty, bought the property in 2004 for $29 million, public records show. Its latest loan was originated in 2016 by an affiliate of Iowa-based Principal Financial Group, before it was split up and sold off to commercial mortgage-backed securities investors.