Distress is threatening to swallow a second office investment that John Vander Zwaag’s firm put into suburban Chicago.
PNC Bank division Midland Loan Services — a special servicer of securitized commercial real estate debt — filed a $28 million foreclosure lawsuit against an affiliate of Vander Zwaag’s Pennsylvania-based landlord company Pembroke IV in Lake County court last month, public records show.
The dispute is over the debt tied to the two-building, 225,400-square-foot office campus at 100 and 150 North Field Drive in the ritzy North Shore suburb of Lake Forest. The loan was issued with a $33 million balance by a California-based firm called Money360 in 2021, public records show. Pembroke had owned one of the two buildings on the campus since 2016, and the firm used the Money360 loan to refinance that building and acquire its twin, which records show traded for $12 million individually at the time.
Pembroke appears to have bet on a turnaround that never arrived.
When it took out the Money360 debt, the Lake Forest buildings were less than 60 percent leased, with suburban Chicago’s office market still reeling from the pandemic. Even well after the health crisis, however, each building is advertising more than 55,000 square feet of offices available apiece, according to online listings through Colliers.
At about half-vacant, the campus is performing well below the suburban average, which accounts for an all-time-high vacancy rate of 31 percent across the region’s entire stock as of the end of the third quarter.
It’s unclear how Pembroke plans to respond to the complaint. Midland has asked the court to appoint the special servicer as receiver for the property while the foreclosure litigation plays out, meaning Pembroke’s ownership and management of the property would be turned over to Midland, at least temporarily, if it fails to pay off the debt. A hearing on Midland’s motion for receivership is set for Friday.
Pembroke, an attorney for its principals and an attorney for Midland didn’t return requests for comment. A Colliers listing broker reached by phone declined to comment.
Midland alleges Pembroke failed to make its monthly debt service payment on the Lake Forest property’s loan in June and failed to pay it off in full on its July maturity date, with a remaining balance of $28 million as of earlier this month, the lawsuit shows.
Pembroke is feeling financial pain in Chicago’s western suburbs, too. A foreclosure auction is scheduled for Tuesday for the 184,000-square-foot office building at 2001 York Road in Oak Brook, after a Pembroke venture allegedly defaulted on $25 million in debt attached to that property, according to loan servicer commentary collated by Morningstar Credit. That property was also less than 60 percent leased and not bringing in enough revenue to cover the cost of its debt service, and Pembroke elected to no longer pay the debt service out of pocket.
Read more
Commercial
Chicago
$25M foreclosure hits Oak Brook office building amid growing distress
Commercial
Chicago
Deerfield landlord defaults on office loan, seeks extension from Rialto
Residential
Chicago
Another Lake Forest mega listing for nearly $28M extends luxury mania