Developer John Murphy’s suburban Chicago office deal is at risk of winding up a loser because of a tenant’s sudden departure this spring.
Rosemont-based bank Wintrust filed a $22.1 million foreclosure lawsuit against an entity tied to Murphy’s Chicago-based development shop Murphy RES late last month, seeking to take the keys to a Class B office building at 2122 York Road in the western suburb of Oak Brook, DuPage County records show.
Murphy sued to evict Oak Point University from the building last month and appears to have won a judgment. That health care-focused educational institution announced earlier this year it would close in April, shocking its students. Oak Point had previously leased about 84,000 square feet in the 126,000-square-foot building, which was constructed in 1978.
Oak Point — which was founded more than 110 years ago, originally named the West Suburban Hospital School for Nurses — has offered few details surrounding its swift demise. Meanwhile, its landlord is now facing the possibility of losing a building into which it poured over $10 million in equity in addition to taking on the $22 million in debt from Wintrust in 2019 to help fund the building’s turnaround, court records show.
Furthermore, Oak Point itself borrowed about $9 million from Fifth Third Bank against its leasehold mortgage of the property — its partial ownership of the real estate required the school to pay Murphy rent, and its departure and failure to pay since its closure is a breach of the loan terms with Murphy, Wintrust’s lawsuit claims.
The lawsuit illustrates the risks of taking on large tenants in relatively small buildings that tie a property’s fate to the decision of one renter, as well as the cracks in the suburban Chicago office market, which is experiencing vacancy around 30 percent and pockets of financial distress as interest-rate hikes and low demand bring borrowers financial pain.
Murphy, Oak Point and an attorney for Wintrust didn’t immediately return requests for comment Monday.
The building was revamped by Murphy in 2020, with Oak Point serving as its anchor tenant. The remaining 43,000 square feet was leased to physical therapy company Athletico, which maintains a location at the property. Murphy bought the building for $15 million in 2019, when it was just 50 percent occupied.
Wintrust’s lawsuit doesn’t claim that Murphy has missed any debt payments so far, but alleges the firm is in default on its obligations because the loan required Oak Point to remain in the property and consistently make its rent payments. The amount of rent Oak Point was paying and obligated to continue paying Murphy is unclear from the documents made public by the lawsuit. Wintrust has requested the court appoint David D. Onion of Chicago Capital Holdings as the property’s receiver to manage the building while the litigation plays out.
Despite the obstacle, Murphy is forging ahead with another project meant to reinvigorate a troubled development site in the Chicago suburbs. It recently acquired a property in Winnetka for $14 million after a previous owner had long targeted development before falling into financial distress — the parcel’s previous debt totaled $29 million. Murphy and Christopher Merrill, CEO of real estate investment firm Harrison Street, bought it out of distress earlier this year with a plan to build high-end rentals set to cost tenants $7,000 to more than $12,500 per month.
Read more
Development
Chicago
Murphy Development targets wealthy renters for Winnetka apartments
Commercial
Chicago
John Murphy shopping landmark East Loop hotel
Residential
Chicago
FPA drops $144M on South Loop apartment tower