Appraisal shaves 84% off Aetna’s distressed Michigan Ave office value

Michigan Avenue landlords can’t catch a break lately.

An appraiser this month drilled the distressed office portion of the historic building at 332 South Michigan with an opinion that erased $48 million from its value, according to loan servicer data collated by ratings agency Morningstar Credit.

The new value of the 20-story property, constructed in 1910, is just $8.7 million, a reduction of more than 80 percent of its $56.3 million valuation provided when the property received its latest loan in 2016, when it was 83 percent leased, the ratings agency said.

If the appraisal holds true, it would amount to a stinging loss for the bondholders in a commercial mortgage-backed securities loan of $33 million issued to the building’s longtime landlord, a venture of New York-based Aetna Realty. The loan’s special servicer, Starwood-owned LNR Partners, earlier this year filed to foreclose on the property’s mortgage, which has an outstanding balance of more than $29 million owed to the bondholders that LNR represents.

While the dropoff in value is dramatic, Aetna — which is owned by investor Ivor Braka — is far from alone among Chicago office landlords, several of which are facing huge foreclosure lawsuits as high interest rates and remote work trends beleaguer the office market.

Elsewhere on Michigan Avenue, sellers have suffered painful losses, including at 150 North Michigan, where Chicago-based R2 Companies this year paid just $60 million to buy the property from a venture of the South Korean postal service that previously spent $121 million to buy the 41-story, 655,000-square-foot tower.

Farther north on Michigan Avenue, several other landlords have been forced to make difficult decisions as they face loan maturities amid a muted office market. Billionaire Neil Bluhm’s firm Walton Street Capital is preparing to sell the office tower at 401 North Michigan, and the price it is expected to fetch wouldn’t cover a $160 million loan that is at risk of going unrepaid.

Furthermore, Chicago-based JMB Realty — where Bluhm is also a partner — chipped in $56 million in new equity to secure a $180 million refinancing of the office and retail portions of 900 North Michigan.

Back to the south, Chicago real estate insiders have begun to wonder whether 200 South Michigan Avenue will face a similar bout with distress, as the property is bifurcated with California-based Stanton Road Capital owning the building and the Shidler Group owning the underlying land; several other major office buildings split into Shidler Group-owned ground leases have ended up causing financial headaches for landlords and their lenders.

At 332 South Michigan, LNR is moving forward with its foreclosure in order to strip the property from Aetna, and it has had Texas-based brokerage and property management firm Transwestern appointed as the building’s receiver while the court case plays out. Transwestern is also handling leasing and property management duties at the building as LNR attempts to start its turnaround out of a dismal leasing market featuring a record-high Chicago office vacancy rate of more than 26 percent as of last quarter. Aetna previously used an in-house leasing team.

The property holds 350,000 square feet of offices across the first 14 floors, which was just 56 percent leased as of the end of last year, while the top six floors consist of 75 luxury condos, which were not a part of the collateral for the 2016 loan. The condos in the building were completed by a previous owner in 2000.

Like other office landlords, Braka’s Aetna venture got scorched 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 Aetna replaced it with Regus, another coworking firm, last fall. But that was right before Aetna ran into cash flow issues and could no longer afford the cost of monthly debt service on the building, loan records show.

Read more

Commercial

Chicago

Michigan Avenue landlord hit with $33M foreclosure

Commercial

Chicago

JMB Realty lands $180M refi for vintage skyscraper that’s 89% leased