Walton Street, Glenstar Take Loss on Suburban Chicago Office

Chicago billionaire Neil Bluhm’s firm Walton Street Capital and its partner Glenstar thought they were buying at the bottom of the market when they scooped up a big office complex in suburban Bannockburn out of foreclosure in 2015.

The floor turned out to be lower than they anticipated, following a pandemic that vaporized demand for office space and ensuing interest rate hikes that cut further into commercial real estate values.

Anthony Donato, a solar-power developer based in the northern suburbs of Chicago, bought the five-building, 530,000-square-foot Bannockburn Lakes office park at 2121-2355 Waukegan Road for $17 million, about $32 per square foot and about 40 percent lower than the property’s 2015 purchase by a joint venture of Walton Street and Glenstar.

Donato plans to remove office uses from at least two of the five identical three-story buildings, and turn the other two into experience-oriented assets geared toward youth and family customers.

He has already filed redevelopment plans with the village of Bannockburn since completing the deal. Village documents confirm he purchased all five buildings in the complex this month and show he wants to turn at least some of the space inside one of the structures, at 2201 Waukegan, into a recreational sports training facility, primarily to be used as a home base by local youth soccer club Pegasus FC. That idea is set to be discussed by Bannockburn officials next week, records show.

“Offices in general are overbuilt right now,” Donato said. He will consider further reimagination of the site in the near future, village documents indicate. “We won’t be close to 100 percent leased right away. But I’m a hands-on individual and I live close to the units and my goal is to fix them up,” said Donato, who has some experience in retail and multifamily real estate while making his first foray into a major commercial office property with the deal.

The sellers, both titans of Chicago’s commercial real estate scene, took a rough loss on their investment in the properties.

The Walton Street and Glenstar venture bought three of the five buildings out of foreclosure a decade ago for a little over $22 million. That set of buildings was 53 percent vacant at the time. Walton Street and Glenstar paid close to $5 million more for a fourth building on the campus in 2015, and then another $6.4 million in 2017 for the fifth building, at 2121 Waukegan, when Chicago-based real estate firm Ameritus sold it.

Glenstar and Walton Street planned to embark on a $10 million renovation to bring new office tenants to the property. They took on a debt package from Square Mile Capital, which was rebranded in 2021 to Affinius Capital, to aid with the turnaround of the property; while Walton Street and Glenstar notched several modifications of their Square Mile mortgage for the Bannockburn deal, presumably to extend the maturity date or amount of their credit line, it’s unclear how much they ultimately ended up on the hook for with the lender.

But vacancy hardly improved during their tenure with the property, as a website for Bannockburn Lakes shows more than 200,000 square feet currently available to lease. Donato said the office buildings are about 38 percent leased currently. A spokesperson for Glenstar said the firm had no comment, and Walton Street didn’t return requests for comment.

Dan Deuter of Cushman & Wakefield brokered the sale to Donato. The buyer said he intends to hire JLL’s Chris Cummins as a leasing agent for the property.

The trade comes as another big Bannockburn property gears up for a transition, and just after a separate Chicago CRE bigwig, Wanxiang’s Larry Krueger, handed a midsize Bannockburn office building back to its lender to settle a foreclosure lawsuit brought against Krueger’s firm for a maturity default on a mortgage debt. Furthermore, an office complex in neighboring Lincolnshire that was abandoned by its largest tenant Aon to be left nearly totally vacant traded last year to Woodcrest Capital for just $6.2 million, down 95 percent from its last sale for $148 million made in 2012.

Meanwhile, Ross Perot Jr.’s Dallas-based firm Hillwood is in talks to buy 80 acres of the former Trinity International University campus for about $35 million, with plans to redevelop it into a commercial complex.

Glenstar and Walton Street have taken some licks in the office market but have proven to be believers in Chicago and its surroundings in recent months. Walton Street paid down over $56 million toward a debt package on a Magnificent Mile skyscraper last year in order to refinance, while Glenstar is aiding Minnesota investor Patrick Halloran in a $30 million renovation of a 41-story office tower on Chicago’s Wacker Drive following its purchase out of financial distress.