The Feil Organization is handing back the keys to a River North office property after a loan sale likely wiped out most of its equity, and locally based investor Matt Garrison’s firm is investing in its resuscitation.
Less than a year after Beltway Capital bought the sub-performing loan for 730 North Franklin Street, the lender filed a $15.3 million foreclosure lawsuit in February.
Rather than fight back in court, Feil executed a deed-in-lieu of foreclosure with Beltway that was finalized July 9, according to Cook County records.
At the same time, Beltway brought on Garrison’s Chicago-based firm R2 to operate the building in a joint venture. R2 plans to invest capital into the building to convert the office space to smaller, rentable suites. Although the property was struggling to maintain office tenants, it has gallery space that has been performing well.
“We are good with loft buildings and creative tenants,” said R2’s Zack Cupkovic. “We’ve proven that with our work on Goose Island and with The Salt Shed.”
Goose Island has undergone some recent transformations from a purely industrial and warehouse-centric neighborhood to a hub for adaptive re-use projects. R2 manages The Salt Shed, the concert venue at the former Morton Salt facility.
At 92,000 square feet, 730 North Franklin was a relatively small building for Feil, which also jointly owns a high-end retail and office building at 645 North Michigan Avenue that was recapitalized this year with a $55 million loan.
But the landlord couldn’t pull off a similar feat for 730 North Franklin, a seven-story property first built in 1900. Feil bought the property for $23.3 million in 2017, setting it up for a loss with its surrender to Beltway.
It’s another example of a big-time landlord caught up in financial distress as offices struggle with vacancy rates and interest-rate surges squeeze borrowers. And how those same struggles can present opportunities for local players.
“A lot of people focus on distress in the office market in Chicago but there are really good buildings out there and people who want to lease this kind of office space if you can get a project started and have the confidence to spend a little money,” Cupkovic said.
Cupkovic noted that its location in River North and access to transit made it a desirable asset as well. He declined to share how much the firm plans to invest in the building’s turnaround.
Feil’s loan for the property was originated in 2017 by Sun Life Assurance Company of Canada, which sold the debt to Beltway. Representatives of the Feil Organization declined to comment and Beltway didn’t respond to requests for comment.
Loan note sales are one avenue lenders are considering more often as office distress continues to mount across the nation. Post-pandemic work-from-home policies have hammered the office market, but lenders haven’t all pounced at once. Some have offered extensions on under-performing loans rather than file foreclosure lawsuits as soon as loans mature.
Beltway also recently bought a sub-performing $42 million loan tied to a trio of West Loop offices at 641 West Lake Street, 901 West Jackson Boulevard and 130 South Jefferson Street. R2 and Chicago-based Heitman have owned the buildings jointly since 2019.
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Whether the lender will move to foreclose on the properties is uncertain. The transaction took place in April and no legal action has been filed since. R2 CEO Matt Garrison said Beltway “wants to capitalize aggressive leasing programs,” and occupancy is up to nearly 100 percent at 901 West Jackson.
Meanwhile, Feil is also working on a suburban Chicago mall turnaround, after dodging foreclosure at the 1.4 million-square-foot North Riverside Park Mall by extending the property’s $75 million loan until October this year. Feil agreed to pump $8 million into renovations at the property to pause a lender’s foreclosure lawsuit, and the project is expected to be completed by September, a spokesperson for the landlord said, ahead of the new maturity date.