Beacon Capital Partners insists it can still work out a Chicago skyscraper’s troubled $370 million debt, despite a CMBS lender’s foreclosure lawsuit filed Friday.
Boston-based Beacon, one of Chicago’s most prominent office landlords, was hit with an allegation that it owes $372 million to the bondholders in the loan, if it wants to avoid a foreclosure sale of 330 North Wabash Avenue, also known as AMA Plaza for its largest tenant, the American Medical Association.
This marks one of Chicago’s biggest commercial real estate foreclosure attempts ever, adding another large data point to the historic wave of distress in the office market coming out of a pandemic that depressed demand for downtown leases and led to inflation that sparked painful interest rate hikes — particularly for landlords like Beacon, which took out floating rate debt on 330 North Wabash in 2021.
It bought the property for $467 million in 2016. The lawsuit alleges Beacon missed a $3.8 million property tax payment due in August, plus monthly debt service payment for the property, sparking the loan default.
Still, Beacon said it hopes to work out a way to hold onto the 52-story riverfront property, even as other office landlords have opted to walk away from their investments by handing the keys to their lenders instead of trying to fight the current of higher interest rates and lower tenant demand compared to when they last borrowed.
“We believe the foreclosure action filed against AMA Plaza is premature and inappropriate,” a spokesperson for Beacon said. “We have remained in active discussions with the lender regarding a restructuring of the loan. AMA Plaza is a great asset in a city we have conviction in and plan to continue to work with the lender to reach a productive outcome.”
The 1.2 million-square-foot skyscraper, designed by Ludwig Mies van der Rohe and formerly called the IBM Building, couldn’t keep affording debt service as its variable rate ratcheted upward, costing the landlord more each month amid the Federal Reserve’s campaign to combat inflation by raising rates. The building’s net operating income of $27.4 million last year fell short of its $28.1 million debt service, pushing it closer to default, public loan data shows.
Although Beacon previously secured a one-year extension on the loan by paying down $5.9 million of the debt, it signaled financial trouble when the mortgage was transferred to a special servicer, Situs Holdings, earlier this year. Situs couldn’t immediately be reached for comment.
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Beacon’s portion of the building is about 84 percent leased, down from 96 percent when it was acquired. The AMA recently extended its lease through 2035 but slightly reduced its occupancy.
The foreclosure on AMA Plaza is not Beacon’s only challenge in Chicago. The firm also faces a looming deadline to repay a $156 million loan on its 303 East Wacker Drive property and recently sought a buyer for that building. Despite setbacks, Beacon showed confidence in Chicago’s office market by purchasing 333 West Wacker for $125 million this year, a fraction of its 2015 value. Beacon’s portfolio includes several other Chicago office properties, at 231 South LaSalle Street, 190 South LaSalle Street, 515 N. State St. and 1 N. Dearborn St. yet the company faces ongoing financial strain.