Fred Seigel’s firm looks like it’s fed up with its floating interest rate on a massive Chicago office tower loan.
His Boston-based Beacon Capital Partners’ $370 million commercial mortgage-backed securities loan moved to special servicing in recent weeks, a sign the borrower is likely to default on the debt tied to the 1.2 million-square-foot skyscraper at 330 North Wabash, called AMA Plaza and previously known as the IBM Building.
Beacon has indicated to the loan’s debt servicer that it might not make August debt service payments, and may also withhold a $4.4 million property tax payment due this month, according to Morningstar Credit.
The loan was transferred to special servicer Situs Holdings late last month.
While some office landlords have opted to hand back the keys to their lenders rather than try to overcome high interest rates and remote work trends that have eaten into property values, Beacon is so far working to hold onto the property.
“330 North Wabash is an extraordinary property, and we are currently engaged in active and productive discussions with the special servicer,” a spokesperson for the company said.
The landlord’s unwillingness to make the August loan and property tax payments comes despite it having notched a one-year maturity date extension a few weeks ago, according to debt tracking service CRED iQ. The extension pushed out the maturity date from June 2024 to June 2025.
Beacon bought 330 North Wabash for $467 million in 2016, and refinanced it with the $370 million CMBS loan originated in 2021 with a floating interest rate. The variable rate has cost the borrower big bucks as the Federal Reserve has hiked interest rates to combat inflation, pushing the building’s debt service payments to $13 million last year, up nearly 90 percent from the previous year, according to Trepp.
The rise in interest rates has cut into Beacon’s cash flow, with its debt service coverage ratio — a measure of how much revenue a property brings in compared to the cost of its debt — falling below 1 last year, meaning the landlord had to kick in extra cash out of pocket to make loan payments.
AMA Plaza fell to 84 percent leased as of the end of last year, down from 93 percent when its now-troubled loan was issued. Its biggest tenant is the American Medical Association, which leased 268,000 square feet through 2028, but it has a termination option next year. A person familiar with the property, however, said the AMA has extended its lease through 2035, though it’s unclear from the source whether the organization will lease the same amount of space on the longer term. The AMA didn’t immediately return a request for comment.
Despite Beacon’s imminent default, it has remained bullish on the Chicago office market, having paid $125 million this summer to buy 333 West Wacker Drive in another massive office tower discount from its previous sale price. Beacon also owns Chicago office towers at 515 North State Street, 303 East Wacker, 230 South LaSalle Street and 190 South LaSalle, and it also has stakes in 1 North Dearborn Street and Trammell Crow’s Fulton Labs project at 1375 West Fulton Street.
This is a developing story.
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