Stonemont’s Markwell Drags Suburban Offices into Big Foreclosure

Four more big buildings are splashing down into an already crowded pool of distressed suburban Chicago office assets.

Zack Markwell, the CEO of Atlanta-based real estate firm Stonemont Financial Group, owns a massive portfolio of commercial real estate, separately from his firm, that has become the subject of a $664 million foreclosure dispute in Illinois court.

That remaining debt balance is part of a $925 million loan issued in September 2019, right before the pandemic decimated the values of office buildings that make up a huge portion of the real estate portfolio securing the loan to Markwell’s venture, which also includes Palm Beach, Florida-based firm Inclenberg Investments. They concentrated on assembling single-tenant buildings while amassing the portfolio.

The loan’s special servicer, CWCapital Asset Management, filed a lawsuit last month on behalf of bondholders in the commercial mortgage-backed securities debt to foreclose on the properties in federal court, and on Monday filed a petition to appoint a receiver to the portfolio that sprawls across the nation.

The portfolio is concentrated in the Chicago area, as it includes office buildings spanning more than 1.1 million square feet in Schaumburg, Bannockburn, Aurora and Hoffman Estates, along with 19 retail bank branch buildings in Illinois. The bank buildings are leased to First Midwest Bank, mostly in Chicagoland.

The portfolio includes 40 properties in total, with 17 of them being offices. Most of the buildings are in Illinois, with the biggest office in the portfolio being the two-building Motorola campus at Algonquin and Meacham roads in Schaumburg, spanning more than 500,000 square feet; the campus was listed for sale in 2020 but never traded after Markwell was hoping to fetch $100 million for the property.

The other Chicago-area offices are the 260,000-square-foot building leased to Baxalta in Bannockburn, a 273,000-square-foot MetLife-leased office in Aurora and a 114,000-square-foot Hoffman Estates office rented to food and beverage supplier Tate & Lyle.

In addition to the Chicagoland assets, it includes a 420,000-square-foot office property leased to MetLife in Bridgewater, New Jersey, as well as a 336,000-square-foot St. Louis office leased to health insurer Anthem Blue Cross Blue Shield, public loan data shows.

Markwell late last year informed bondholders in the huge debt package that his venture fell victim to the dropoff in office values due to the pandemic cutting demand for workspace, and he was unable to make a deal to refinance or sell the property to fully repay the loan before its January 2025 maturity.

While Markwell controls the real estate separately from Stonemont, the firm is claiming to be cooperating with CWCapital as the special servicer moves to resolve the loan default through either foreclosure or a settlement that will lead to a dismissal of the lawsuit.

“Stonemont has been in active conversations with the lender and special servicer for a number of months and we are continuing this process in order to find a mutually agreeable solution — potentially including Stonemont continuing to manage the portfolio on behalf of the lender,” a spokesperson for Stonemont said.

Other lenders have also allowed borrowers who fell into default on Chicagoland office bets made before the pandemic to keep property management duties for assets seized in distress, including Chicago-based Glenstar, which surrendered the 1 million-square-foot Schaumburg Corporate Center property at 1515 East Woodfield Road to Affinius Capital in 2023.

Markwell’s venture plans to consent to the appointment of Washington, D.C.-based FTI Consulting as a receiver for the real estate, meaning FTI is likely to act as property owner and fund the costs of leasing and building operations while CWCapital and the borrower work to resolve the financial trouble.

Spending on property upgrades could be key to keeping current tenants in the portfolio, which is crucial for property values since each building is only exposed to one tenant that could leave a big hole to fill during a record low for the suburban Chicago office market of more than 30 percent vacancy.

“Due to the non-recourse nature of the debt they have little incentive to actively manage and maintain the property,” CWCapital said in its petition for a receiver.

The foreclosure suit against Markwell’s venture was filed weeks before a piece of another severely troubled suburban Chicago office portfolio traded hands. Highland Park-based developer Mitch Goltz’s firm scored a huge discount to buy the Oak Brook Office Center in the western suburbs, a property that became controlled by its lender after its previous owner, Canadian real estate firm Adventus Realty Trust, defaulted on multiple massive loans for offices in the Chicago and Atlanta areas to drive the firm into insolvency.