Feil Organization is facing foreclosure on a $19.5 million loan backed by a Lincoln Park retail property, shortly after a rent reduction request from tenant Lululemon sparked concern over the landlord’s ability to cover its debts.
The property was transferred to special servicing earlier this month, and Wilmington Trust swiftly followed up by filing a foreclosure complaint in Cook County Court on behalf of the loan’s originator, Wells Fargo.
In the complaint, Wilmington Trust claims a representative of Feil emailed the special servicer, Argentic Services, stating that the landlord would not be able to make debt service payments or pay operating expenses for the building once Lululemon’s rent reduction took effect.
The email itself constituted an “event of default,” on the $19.5 million loan, according to the legal filing.
The 31,800-square-foot building at 938 West North Avenue is 83 percent leased to Lululemon, whose 26,400-square-foot lease runs through January. Sephora occupies the other 5,400 square feet, with a lease expiration in January 2029. The building was last renovated in 2018.
The rent for the athleticwear brand was underwritten at $1.4 million annually, or roughly $54 per square foot. Annual debt service on the $19.5 million loan is about $713,000. The request for a rent cut would push the debt service coverage ratio below breakeven, according to Morningstar Credit. The potential rent reduction’s size is unknown. Lululemon’s lease expiration is less than two years away.
The loan is interest-only, with monthly payments of just over $60,000. As of the end of last year, the debt was covering at a healthy 2.42x, offering a glimpse of how severe the rent cut would be to threaten repayment. Maturity is set for October 2029.
Lululemon opened the North Avenue location in 2018 as its largest North Side store.
The building’s loan was packaged into a 2019 CMBS deal issued by Wells Fargo, where it makes up just over 3 percent of the pool. The loan is now being handled by special servicer Argentic Services Company.
The move into special servicing adds to a string of setbacks for Feil, which has been working through distress in other parts of its portfolio.
Neither Feil nor Wilmington Trust has commented on the future of the property.
In Chicago’s Loop, Rialto filed a foreclosure suit against Feil in January over unpaid contractor liens at an office tower at 10 South LaSalle, where Feil had struggled to refinance amid the wider crisis for downtown office.
Feil also handed back the keys to a River North office property at 730 North Franklin Street last year after a loan sale likely wiped out most of its equity.
Less than a year after Beltway Capital bought the sub-performing loan for 730 North Franklin Street, the lender filed a $15.3 million foreclosure lawsuit.
Rather than fight back in court, Feil executed a deed-in-lieu of foreclosure with Beltway. Around the same time, Beltway brought on Matt Garrison’s Chicago-based firm R2 to operate the building in a joint venture.
Meanwhile, Feil is in the middle of an $8 million renovation turnaround play at the North Riverside Park Mall in the Chicago suburb of North Riverside. The plans came after the owner successfully evaded foreclosure of a $75 million debt that became the source of a lawsuit in the early months of the pandemic.
Feil’s difficulties are not limited to Chicago. In New York, the firm recently started construction on a Billionaires’ Row condo conversion after years of delays and litigation.