LG Group’s Chicago Apartment Conversion Faces Foreclosure

Chicago developer Brian Goldberg jumped into an office-to-residential conversion well before the pandemic made such projects trendy.

But his firm LG Group’s bet on a Loop building at 330 South Wells Street exposes the risks of such real estate endeavors, as well as the hazards of adjustable interest rate loans that have been taking tolls on multifamily landlords across the nation.

LG affiliates and Goldberg were hit with a $27 million foreclosure lawsuit for the 17-story property on Friday by San Francisco-based lender Prime Finance, Cook County court records show.

The dispute adds to the growing handful of multifamily deals that have fallen into distress since 2022, when interest rate hikes began squeezing some landlords despite the Chicago area ranking among the metros with the largest rent growth due to a dropoff in development that wasn’t as pronounced in the Sun Belt, where rents are falling due to oversupply in recent years.

Prime alleges that LG and Goldberg, who signed a guarantee for the debt, still owes $27.8 million, according to the lawsuit. The loan was scheduled to mature in November, but the deadline for the full payoff appears to have been extended until February, when it remained unpaid, the suit said.

An LG executive declined to comment on the matter, and Prime didn’t return a request for comment.

The 1927 building was previously known as the Chicago Insurance Center for its use as an office building, but it now contains 132 apartment units. It also holds 24,000 square feet of office space on the second through fifth floors, with retail on the first.

LG embarked upon the residential conversion in 2018, when it partnered with Chicago-based Marc Realty to land a $27 million construction loan for the project. Marc had hired LG as a general contractor for the project, and then LG expanded its role in the building by signing a decades-long ground lease with Marc.

LG refinanced the construction loan in 2021, with a $28 million loan from Prime that’s now allegedly in default. The debt’s floating interest rate would eventually scuttle the deal.

The loan was packaged up with other real estate debts and sold off to investors in commercial mortgage-backed securities, making much of its financial performance metrics available to the public. Situs Holdings began overseeing debt service for the property in the fall, when it became clear that interest rate hikes over the last three years spiked the cost of carrying the debt for the landlord and drained the property’s revenue.

The property’s debt service costs for 2023 of $2.4 million outstripped its net cash flow of nearly $1.9 million, according to loan servicer data collected by Morningstar Credit. While the property’s rents have been labeled “stagnant” by Situs, it posted better net cash flow last year of nearly $2 million despite its occupancy rate dropping to 88 percent from 97 percent in 2023, but the debt service costs for last year haven’t yet been posted; still, Situs has said the property isn’t breaking even in recent months.

LG isn’t alone. Prime Finance last year filed a $69 million foreclosure lawsuit against landlord Jonathan Holtzman’s Michigan-based firm City Club Apartments, which owns the 190-unit Loop building at 63 East Lake Street. That suit is pending in Cook County court.