Chicago real estate investor Igor Gabal is set to add two more historic and financially distressed Loop office buildings to his portfolio after striking major discounts to take over loan notes from their original creditors.
Gabal, along with Ruben Espinoza, his partner in the ownership of 300 West Adams Street — another landmarked building the pair bought out of foreclosure early this year — claim they have deals lined up to become owners of the Burnham Center, and also recapitalize 19 South LaSalle Street to convert the struggling office property into 175 apartments, they told The Real Deal. The conversion is expected to cost about $53 million, Espinoza said.
The LaSalle Street deal closed in recent days after Espinoza, its current owner, agreed to surrender a deed to the Gabal-backed venture that bought the troubled 159,000-square-foot building’s loan note for just $4.2 million, a big cut from the $19 million still owed on the building’s debt to bondholders in the CMBS loan originated by Ready Capital in 2019.
For the Burnham Center, Gabal says he’s set to close at the end of this month on a $5 million acquisition of the loan note tied to the ground underlying the 584,000-square-foot building at 111 West Washington Street, a 21-story asset that was the last design by famed architect Daniel Burnham before his death in 1912. The deal hasn’t closed and could still fall apart. But the price Gabal claims he’s paying is an eye-popping 88 percent discount from the $42 million loan that the current landowner, The Shidler Group, owes to an insurance company represented by Wells Fargo.
“That’s how bad the office market is in Chicago,” Espinoza said.
Wells Fargo, on behalf of the unidentified insurance company, sued The Shidler Group and its ownership entity for foreclosure on the property earlier this year, after the building’s leasehold owner, Chicago-based Golub & Co., defaulted on its debt obligations at the more century-old property. Golub had its own $75 million loan against the building portion of the property, with a commitment to pay Shidler ground lease rent on top of its own debt service, but failed to comply with the loan terms, court records show.
That triggered Wells Fargo’s suit against Shidler, which Gabal says is set to walk away from the property. Gabal and Espinoza — who claims he’s involved in the Burnham Center deal, while Gabal declined to comment on that, saying he’s doing the deal on his own — still need to negotiate a takeover of the deed to the building from Golub or its lender, CIT Group. It’s unclear whether that will require additional capital beyond the $5 million they say is going toward the note.
Together, the deals highlight just how rough the central Loop office market has gotten in the post-pandemic environment, with commercial tenants drastically shrinking their real estate footprints and interest rates on the rise for the past two years until recently. Those factors have combined to decimate demand for urban real estate — Chicago’s office vacancy rate hovers near a record high around 25 percent — and property values, forcing lenders to embark upon a historic wave of foreclosures and takeaways from landlords.
“We want the Loop to be good, to come back,” Gabal said, adding that he “has a taste” for downtown Chicago’s historic buildings.
He plans to keep the Burnham Center as mostly an office use, although it was only 65 percent leased when Golub hired Cuhsman & Wakefield last year to try to beat the clock and sell the building before the landlord’s loan default. Gabal hopes the entrance of Google into the Thompson Center in the central Loop revives demand for downtown office space.
Still, not even Gabal’s partner Espinoza at 300 West Adams — a 12-story, 254,000-square-foot office building they bought for just $4 million earlier this year, a massive trim from the $38 million valuation it carried in 2012 — have totally avoided the legal drama tied to the remarkable financial trouble in the commercial real estate market.
The pair is on the hook to pay ground rent payments to Shidler for 300 West Adams, which remains the owner of the underlying ground while Espinoza and Gabal own the leasehold for the building. The deal for the Burnham Center, which may help facilitate Shidler’s exit from that property’s troubled capital stack, could help improve their position at 300 West Adams.
Plus, an Espinoza-led venture was hit with a foreclosure lawsuit for 19 South LaSalle by an entity representing Ready Capital in 2022, when he allegedly defaulted on the loan he took out to buy the building for $22 million in 2019. He said he lost over $10 million in equity on the property, though is remaining involved in the new ownership venture striving to convert the 131-year-old 16-story building into housing.
“I was looking to do a hotel there before Covid hit,” Espinoza said. “It was challenging.”
Gabal, too, recently overcame a lawsuit brought by investor John Thomas claiming Thomas was wrongly cut out of the deal to buy 300 West Adams.
John Rothschild Jr., a distressed asset receiver with Newmark appointed by the Cook County court at the request of Wells Fargo to oversee the Burnham Center during the foreclosure case, didn’t return a request for comment. Ready Capital also didn’t return a request for comment. Golub didn’t return a voicemail requesting comment.
Espinoza’s lawsuits
Furthermore, Espinoza is a partner in the ownership entity targeted by a foreclosure lawsuit filed last week that threatened his plans to revamp a distinct suburban Chicago hotel, one of several legal fights he’s facing.
Local lender CRE Bridge Capital loaned $3.1 million to the owners of the now-shuttered Indian Lakes Hotel in west suburban Bloomingdale on May 20.
The owners, a joint venture between Chicago-based Robert Habeeb Jr. and Espinoza, failed to make the required interest payments almost immediately, according to the lawsuit, filed in DuPage County.
The missed payments, which started June 1, plus late fees and an exit fee implemented by the lender add up to about $200,000, all of which could be covered by escrow money that the Habeeb-Espinoza venture put down when the loan closed.
But the borrowers’ monthslong failure to make interest payments set off a domino effect and constituted a default on the full loan amount, according to the lawsuit. As a result, the lender has the right to request that the borrowers repay the $3.1 million principal or risk losing the property altogether.
Espinoza attributed the dispute to a “misunderstanding” between the ownership and the lender.
The legal action joins a trio of lawsuits against Espinoza, who allegedly owes close to $4 million combined to a would-be commercial tenant and two other lenders. Espinoza said he plans to address all of them, and only fell behind on payments owed the opposing parties in the suits due to either the failures of his partners involved in the disputes, or, in the case of a tenant that says it’s owed a more than $300,000 security deposit, a simple lack of awareness of the problem.
Habeeb and an attorney for CRE Bridge Capital did not respond to requests for comment. CRE Bridge Capital Managing Partner Daniel Sobelman declined to comment.
The $3.1 million loan from CRE Bridge was issued this spring to refinance a mortgage that was set to mature on the Bloomingdale property, at 250 West Schick Road according to a LinkedIn post from the lender. At the time, the owners were also looking for a separate lender to issue a construction loan that would fund renovations for the hotel, the post said.
“The sponsor has an excellent track record with over 40 hotel development projects and over 25 Hotel and Food & Beverage facilities currently under management,” the social media post read.
Last year, Habeeb told the Daily Herald they planned to pour $30 million into the renovation efforts. Espinoza said Wednesday they may slightly scale back the cost of the proposed renovation but they’re planning on proceeding with it once he has resolved the lender’s complaint.
That track record likely refers to Habeeb’s career. He is founder of the hospitality group Maverick Hotels and Restaurants and spent over 20 years working for the Indian Lakes Hotel’s former owners, First Hospitality Group, according to his website.
Espinoza — who runs NDR Holdings — has a real estate portfolio that primarily consists of several office, retail and industrial buildings in downtown Chicago and elsewhere. In addition to the Indian Lakes Hotel, Espinoza’s firm’s website also lists a Rosemont Hyatt as a part of its portfolio.
Habeeb and Espinoza bought the 300-room Indian Lakes Hotel in 2022 with a $3.8 million mortgage from Florida-based lender MRW Financial. The golf course portion of the resort had already been sold off to the Village of Bloomingdale for $8 million two years prior.
The resort’s previous owner was Habeeb’s former firm First Hospitality Group. Its business license was revoked by the Village of Bloomingdale in 2021 following a shooting at the hotel that left one person dead and several others injured.
Habeeb along with Espinoza bought the property through Maverick with plans to fully renovate and re-open the resort.