Ruben Espinoza Faces Foreclosure on Chicago Loft Offices

Four River North office buildings are headed toward foreclosure amid the post-pandemic cratering of Chicago’s office market, and three of them are owned by embattled landlord Ruben Espinoza.

Espinoza bought the loft-style offices at 215, 221 and 223 West Ohio Street with a $9.6 million loan originated by Wells Fargo in 2017. The loan worked out to about $160 per square foot for the trio of buildings.

He last made payments toward the securitized loan in June. Wells Fargo watchlisted it in August, and collections are in process, according to commentary on CMBS loan tracking platform MorningStar Credit. Espinoza did not respond to requests for comment.

Although he has recently made headlines for a string of legal battles and financial woes, he is not alone in his struggles with River North’s office market.

The vacancy rate in downtown Chicago held steady at 25.8 percent in the third quarter, up from 23.7 percent a year ago and a significant jump from the 13.8 percent at the start of the pandemic, according to CBRE.

Just two blocks away from Espinoza’s properties, Irish investor Sean Conlon, who has properties in Chicago, West Palm Beach and North Carolina, is also facing foreclosure on a loft-style office building.

Rialto Capital took over as the special servicer for Conlon’s $6.4 million securitized loan backed by an office building at 401 West Ontario Street, according to MorningStar. The loan came out to about $157-per square feet. Investment bank Natixis originated it in 2017, and when the pandemic hit, Conlon said he struggled to keep the occupancy rate up.

He tried to save the building by covering its revenue shortfalls himself, paying as much as $50,000 a month to keep it afloat.

“When the pandemic hit, half my tenants went broke, and anyone who stayed, I gave them free rent to stay,” he said.

Conlon hoped to hold on long enough to eventually repurpose the building, but he discovered that the zoning limited his options. The combination of free or discounted rents, sub-60 percent occupancy and high property taxes ultimately landed Conlon’s loan in special servicing.

He said he made an “above market” offer to Rialto to buy out the loan but was rejected, and the building is likely headed to foreclosure. A representative of Rialto Capital declined to comment.

Conlon said he has sold off most of his portfolio in Chicago except for one multifamily and one retail asset. He’s now focusing on his investments in the Southeast and Texas and other non-real estate related business endeavors.

“I was a huge fan of Chicago and it gave me a wonderful career,” Conlon said. “But they have to get out of this doom loop.”

Espinoza’s hits and misses

Since Espinoza’s River North office loan has yet to move to special servicing, there’s still a chance he could work out a solution with his lender. But the warning signals come at a time when he is facing mounting legal and financial troubles.

Around the same time that Espinoza fell behind on payments for the West Ohio Street offices, he was hit with three separate lawsuits filed by a real estate investor, a commercial tenant and a receiver. The plaintiffs all allege Espinoza owes them amounts ranging from $300,000 to $3 million.

He was also hit with a foreclosure lawsuit filed by local lender CRE Bridge Capital that was triggered by missed interest payments on a $3.1 million bridge loan. Espinoza took out the loan in May along with business partner Robert Habeeb Jr. and almost immediately failed to make interest payments, according to DuPage County legal records.

CRE Bridge Capital issued the loan to give Espinoza and Habeeb more time to secure construction financing to revamp and re-open a distinct suburban Chicago resort known as the Indian Lakes Hotel.

The borrowers’ monthslong failure to make interest payments are now putting the owners at risk of losing the property altogether. Espinoza previously told The Real Deal that he hopes to avoid handing back the keys and that the dispute was the result of a “misunderstanding” between the ownership and the CRE Bridge Capital.

Espinoza’s properties caught up in legal trouble make up a significant portion of his company NDR Holdings’ portfolio

But it hasn’t been all bad news.

Igor Gabal, an occasional business partner of Espinoza’s, recently prevailed in a lawsuit filed against him regarding the heavily discounted purchase of a distressed office building at 300 West Adams Street. Although Espinoza was not named in the initial legal filing, he was involved with Gabal in the purchase.

Investors John Thomas and Chris Hansen alleged they were illegally cut out of the $17-per-square foot deal, but a judge recently struck down their case. They filed an appeal that has not been heard yet, meaning the property remains in Gabal and Espinoza’s hands.

Espinoza and Gabal also recently claimed they have deals lined up to buy the Burnham Center and recapitalize 19 South LaSalle Street, an office building owned by Espinoza that is facing a $21 million foreclosure lawsuit.