Jeff Krasnoff’s Rialto Capital is leading yet another charge against a suburban Chicago office landlord struggling with a large delinquent loan and a nearly empty building.
Rialto on Dec. 30 filed a foreclosure lawsuit against the landlord of a Downers Grove building that took out a $45 million loan in 2015, DuPage County records show. The case adds to the historic typhoon of distress in the commercial office property market caused by plummeting demand from tenants amid remote work setups and rising interest rates over the past two years.
The lawsuit follows the building’s depletion to just 14 percent occupied after its largest tenant, Advocate Health Care, exited when its lease expired in April.
Rialto — which is a special debt servicer on behalf of bondholders in the loan for the seven-story, 300,000-square-foot structure at 3075 Highland Parkway — sued a landlord entity controlled by low-profile New York-based investor Teresa Tsai. It alleges the landlord is past due in paying off nearly $29 million of debt, after accounting for $11 million held in the loan’s reserve balance.
While the loan doesn’t mature until August 2025, it became delinquent on monthly payments this summer after Advocate’s departure, a sign the landlord felt it was no longer worthwhile to keep making loan payments on a property that’s likely valued today well below the balance of the loan, as office properties across the Chicago area fetch just fractions of the prices they carried before the pandemic.
Advocate moved its corporate headquarters to the property in 2013, brought 600 employees and leased 140,000 square feet across three-and-a-half floors. Its former landlord brought in $3.6 million in net cash flow last year, down from $4.9 million the year before, but that figure is likely to drop significantly as the building grapples with vacancy for the full year without Advocate, which public loan data shows paid a termination fee to leave the property.
The loan was originated by JPMorgan Chase in 2015 and signed by Tsai, of Interventure Advisors, a low-profile New York-based firm that has held an interest in the building since 2005. The property was previously reported to be owned by Falcon Real Estate Investment Company, which represented overseas investors, and Interventure has known ties to Falcon. The loan was packaged with other real estate debts and sold off to investors in commercial mortgage bonds, making details of the building’s performance publicly available.
Efforts to reach Interventure for comment were unsuccessful, and an attorney listed as a contact for the borrower didn’t return requests for comment. An attorney for Rialto didn’t return requests for comment.
The Highland Landmark I building is among a handful of suburban Chicago office properties Rialto is pursuing through foreclosure sales. The building’s financial challenges reflect broader struggles within Chicago’s suburban office market, which is dealing with sustained pressure from high vacancy rates and post-pandemic drops in demand. Vacancy rates in the suburban office market remain above 30 percent, hovering near record highs set in recent years.
Other real estate investors struggling with office bets in suburban Chicago include Accesso Partners, a firm based in the Miami area. It lost the Highland Oaks office campus, also in Downers Grove just west of the Interventure building to foreclosure. Accesso has also lost Loop towers.
Even closer to the distressed former Advocate offices in Downers Grove, the trouble in suburban Chicago’s office market is equally apparent. An affiliate of JPMorgan last year enlisted Cushman & Wakefield to sell the Highland Parkway V building at 3005 Highland Parkway. It was previously owned by Vancouver-based Adventus Realty Trust, which faced significant financial difficulties with its real estate holdings, leading to the firm’s insolvency through a series of loan defaults on suburban Chicago and Atlanta-area offices.
Back at 3075 Highland Parkway, Rialto is pushing for a foreclosure sale that would allow it to seize the asset from Tsai’s entity at auction using a credit bid for up to the $28 million that the borrower is said to owe.
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