When receiver TrigGild took over Chicago’s Edison Apartments on 5200 North Sheridan Road through a court-ordered sale in early 2023, things should have been looking up for the troubled Edgewater apartment building. But the situation got much worse before it got better.
The property had previously been owned by a venture of Spirit Investment and The Bascom Group before the owners defaulted on their $43 million mortgage in 2022 and got hit with a foreclosure lawsuit.
Then a year after TriGild took over, a fire broke out at The Edison and tenants complained that a faulty alarm system had put their lives at risk. In the aftermath of the fire, two residents were hospitalized and a tenant’s cat died.
Shortly after the fire, Boston-based Berkshire Residential Investments bought the property in a foreclosure auction and took out a $26.5 million loan against the property. Spirit and Bascom’s former lender, MF1, seemed to decide the bet was worth making again and issued the new loan to Berkshire — amounting to essentially a $13.5 million writedown in principal on the property for the lender.
In a Midwest multifamily market that has been making headlines for strong rent growth, a rising tide isn’t necessarily raising all boats.
Some owners of properties that fell into distress as interest rates rose over the past few years have scored lucky breaks via down-to-the-wire refinancing deals. But other properties, like The Edison, faced a rocky road to recovery and some still haven’t found new owners.
Buyers who jump in to save the day can score a discount in this sought-after market, but not all deals are equal, said David Levy, president of Chicago’s chapter of the Turnaround Management Association, a network of professionals who deal with distressed assets.
“What seems like it could be a bargain basement price, really may not be. It’s just a question of someone making different assumptions about how long it’s going to be to get that building stabilized,” he said.
The property owners mentioned in this article did not respond to requests for comment and one couldn’t be reached. A representative of Ares Management declined to comment.
Foreclosure fallout
At least three distressed multifamily properties in Chicago tracked by The Real Deal over the past three years have yet to find new owners. All of them are either still in the hands of a lender or receiver or are awaiting a foreclosure auction.
Some lenders seem to be keeping the assets for now either because they can’t find a buyer or because they see an advantage to holding onto the property for the time being.
At 1411 South Michigan Avenue, an affiliate of Ares Management called AREEIF Lender LLC filed an $80 million foreclosure complaint against Russland Capital, a Chicago-based development firm led by Felix Friedman. Ares seized the property in May 2024 and sold off the ground level medical office space to IRA Capital for $22 million but held onto the apartments above.
Had the developer, Russland, kept the property, it likely would have sold off the ground-floor space itself, to recoup some carrying costs while looking to sell the multifamily portion, Levy said.
“[The lender] moved quickly to do that because they knew they could,” Levy said of the ground-floor sale to IRA.
When foreclosed properties do trade hands, some new buyers end up with bargains at an increasingly competitive time for the market across the spectrum of asset size. Far from the shadows cast by downtown apartment towers, there has been plenty of financial pain that’s luring new buyers to smaller buildings on the South and West sides.
Chicago-based Optimus Realty bought 2900 East 79th Street in South Shore after lenders foreclosed on the property in late 2024, public records show. Optimus bought the property for a steep discount at $400,000. It last sold for $2 million in 2021. The building, however, may have previously traded at an inflated value amid a fix-and-flip scheme gone wrong.
Escape artists
Several properties at risk of foreclosure have scored much needed refinancing or were sold in the nick of time.
At 500 Station Boulevard in Aurora, Houston-based investor Amit Goel was struggling to turn a profit on a high-interest, $130 million loan from MF1. Ahead of its May 2024 maturity, the property was only generating enough income to cover 58 percent of its debt service costs, according to loan servicer reports.
But Goel pulled in a $130 million refinancing from Bridge Investment Group in July. The deal came on the heels of a recent series of Chicago multifamily refinancing deals both on and off the CMBS market.
After facing thin margins, Noah Properties, the Chicago-based development team founded by the husband-and-wife duo Bart Przyjemski and Anita Lisek, recently sold The Avondale. An out-of-state buyer purchased the 52-unit townhome property at 4200 West Belmont Avenue for $34 million.
The buyer, who has not been identified in public records yet, plans to convert the property into condos, according to Kiser Group, which brokered the sale on behalf of both sides of the deal.
“They were originally intended to be for-sale condos, and the market wasn’t there for them in 2022, when it was still the tail-end of the pandemic, and Noah filled it up with renters,” Kiser’s Andy Friedman, who represented the buyer in the Avondale deal, said at the time of the sale.
Prior to the sale, loan data showed The Avondale generated nearly $2.3 million in revenue last year and was 94 percent leased, but with over $800,000 in operating expenses and $2.4 million in debt service costs on a Ready Capital collateralized loan obligation deal, it wasn’t turning a profit.
While The Avondale features larger units than standard Chicago apartment buildings, making it more amenable to condos, conversions are unlikely to be the right route out of distress for most other properties — though Crescent Heights is giving it a go at 850 North Lake Shore Drive after buying it for a massive discount.
“It wouldn’t be the strategy that jumps to the top of my mind,” Levy said of turning rentals to condos. “Interest rates are so high, they’re putting a dampener on the residential housing market.”
Toeing the line
When interest rate hikes began in 2022, some otherwise strong assets became a headache for owners.
Take Torchlight Investor’s City View at The Highlands apartment complex in suburban Lombard, for example. The property ran into trouble last year when debt service costs on the $73.5 million CMBS loan backed by the property began to outpace revenue generated by the apartments. The debt service costs increased because the loan’s floating rate had surged from 4.8 percent to 7.9 percent, according to CMBS loan tracking platform Morningstar Credit.
Even though Chicago’s hot suburban multifamily market helped drive the complex to achieve 94 percent occupancy, it still was not generating enough income to cover debt costs. Now, a year later, the building’s debt service coverage ratio, or DSCR, has improved from 0.88 to 1.02. In other words, it’s bringing in just enough revenue to exceed expenses. With a loan maturity date of January 2032, the apartments are running on thin margins but in the clear for now.
The market’s strong fundamentals have helped push up rents and maintain demand. Over the past year, three other multifamily properties tracked by The Real Deal have pushed their DSCR above their breakeven points, and started to eke out a profit.
Meanwhile, three multifamily properties tracked over the same time period haven’t improved their DSCRs enough to turn a profit.
At 2625 North Clark Street, Strategic Properties of North America, also known as SPNA, has had its ratio stuck below breakeven since 2023. There is still time for a turnaround because its floating rate, $36.7 million loan doesn’t mature until January 2032, Morningstar Credit shows.
But the firm, which specializes in condo deconversions, has been struggling in recent years. Over the past two years, two condo boards working with SPNA have canceled buyout deals totaling $185 million due to slow financing progress.
Properties to watch
Some more distressed properties to watch are two student housing complexes near Roosevelt University and The University of Illinois at Chicago.
Landlord Versity, led by Brian Nelson, has been delinquent on payments for The Buckingham and the Tailor Lofts in Chicago since July, loan servicer data shows.
Nelson said last month he is working with the lenders to resume the payments and that a separate legal dispute between himself and other Versity executives had caused the delay.
Versity could forge another comeback because the loans for the Buckingham and the Tailor Lofts don’t mature until 2028 and 2029, respectively. But If the payments don’t get back on track, lenders could come knocking.