While office foreclosures have taken the spotlight in Chicago, one South Loop apartment complex faces a similar fate.
Russland Capital recently handed back the keys to a 188-unit apartment building it developed at 1411 South Michigan Avenue, according to legal documents filed in April.
The Chicago-based firm pursued a deed-in-lieu of foreclosure with its lender, an affiliate of Ares Management known as AREEIF Lender LLC. The lender filed an $80 million foreclosure lawsuit on the property in January. The default amounts to $402,000 per unit.
Deed-in-lieu of foreclosure allows owners to transfer title without the lender filing a foreclosure action. In return, the borrower will want release from things like a payment or completion guarantee, and a commitment that the lender won’t pursue legal action to enforce the loan in the future.
The 15-story building would’ve been the largest multifamily foreclosure in Chicago since commercial real estate owners began struggling with rising interest rates in 2022.
A representative of Ares declined to comment. Russland Capital’s Felix Friedman did not respond to a request for comment.
Russland took out a $53 million construction loan to develop the building in 2016.
After refinancing the construction debt with the Ares affiliate through a $76 million loan, Russland was obligated to pay off the lender by January 2022. The loan’s maturity date was extended twice until April 2023 but was never paid off, the January complaint alleged.
It is the third deed in lieu of foreclosure of its scale pursued in Chicago in recent months. A joint venture of Chicago-based Hearn and New York-based Fortress Investment Group are pursuing deed-in-lieu of foreclosure for office building 2 North LaSalle, Morningstar Credit reported in May.
Meanwhile, Intersection Realty Group had been planning to convert 65 East Wacker Place into a mix of office and residential uses by adding 144 apartments. The firm’s goal was to complete the conversion of the 96-year-old building in 18 months. Instead, Intersection signed a deed-in-lieu of foreclosure in March.
Although multifamily development in Chicago has generally fared better than office buildings since interest rates began to rise, the sector has not been immune to the pressures of the current lending environment.
Even properties that have strong occupancy rates can struggle to pencil out if they are saddled with floating rate debt. CedarSt Companies recently faced troubles with loans on buildings with 95 percent occupancy.
And more than $240 million worth of multifamily debt tied to bigtime real estate investors is in hot water in Chicagoland due to floating interest rates.
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