Floating rates have claimed another victim in Chicago.
Upshore Chapter, an Uptown apartment building built by construction giant Clayco’s development arm CRG, is scheduled for a UCC foreclosure auction on December 16, a public notice states.
The scheduled sale, which was requested by the loan’s special servicer Situs Holdings, will be held by Mannion Auctions. It comes after its owners fell behind on debt payments and tried but failed to sell the building ahead of the maturity date on its $39 million loan.
CRG, a Chicago-based real estate developer, built the 149-unit highrise, at 4555 North Sheridan Road, for $30.7 million or a little more than $200,000 per unit, according to its website.
The firm started construction in June 2018 with its sister companies, Lamar Johnson Collaborative and Clayco, and completed it in 2019. CRG refinanced in 2021 with a variable interest rate loan issued by an affiliate of San Francisco-based TPG, at a time when rates were significantly lower than they are today. The loan was bundled with other debt backed by commercial properties in a financial vehicle known as a collateralized loan obligation.
CRG considered selling prior to refinancing in 2021, but uncertainty around the city’s tax environment tempered interest from buyers, CRG’s CEO Shawn Clark said.
“The property continues to perform well but the interest expenses did contribute to the challenges of the property and we came to an amicable solution to hand the keys over,” Clark, who assumed the role of CEO for CRG last year, told The Real Deal. “Both Situs and TPG have been really positive and complimentary to our team and regard us as a good borrower.”
The property has been at or above 90 percent occupancy since it opened, Clark said.
In June 2023, CRG hired CBRE’s Chicago multifamily team to market the 4555 North Sheridan Road property but didn’t find a buyer.
About a year later, CRG’s lender watchlisted the securitized loan and then moved it to special servicing with Situs Holdings this August. Payments on the loan have been delinquent since then and the loan matured in October, according to securitized loan tracking platform Morningstar Credit.
While the region’s multifamily market has shown promise, particularly in the suburbs, floating rate loans have undercut the performance of some otherwise healthy assets. The region’s strong job market and rent growth have not counteracted the effects of rising rates on floating rate debt taken out before 2022.
More than a dozen major multifamily properties with floating rate loans in Chicagoland are burning more cash than they are bringing in, data from Morningstar Credit shows.
Even as some investments from 2019, 2020 and 2021 start to falter, investors and developers are starting fresh with new deals and projects. CRG itself is underway with construction on a Fulton Market multifamily tower development it partnered with Jeff Shapack on after they secured $84 million in financing early this year.
And not far from Upshore Chapter, the Chicago Plan Commission approved a developer’s proposal last month to replace a vacant mid-block parcel at 936 West Leland Avenue with a five-story, 32-unit apartment building. The cost for that project comes to $297,000 per unit.
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