CWCapital Forecloses on Group RMC’s Chicago-Area Office Loan

David Iannarone’s securitized debt enforcer isn’t biting on a big suburban Chicago office landlord’s offer to buy a troubled loan note at a hefty discount.

CWCapital Asset Management, the commercial loan special servicer, whose CEO is Iannarone, filed an $87 million foreclosure lawsuit last week in Cook County court against New York-based Group RMC over the Westbrook Corporate Center in Westchester, escalating a yearlong loan dispute that encapsulates the turmoil gripping Chicago’s suburban office market.

The special servicer, acting on behalf of a CMBS trust, has so far rejected Group RMC’s offer to pay $52.5 million in exchange for the loan note tied to the 1.1 million-square-foot complex spread across five buildings, according to sources familiar with the negotiations.

The offer amounted to $48 per square foot.

Such a transaction would mark a painful discount for the lender but also avoid the costs of further litigation by essentially handing control of the property to Group RMC by acknowledging its slide in value amid the post-pandemic pullback from the office sector.

“Group RMC remains committed to the asset, working to ensure its long term success and avoiding foreclosure,” a company spokesperson told The Real Deal. “We are in active discussions with the lender to reinstate the loan and formulate a plan to stabilize the property.”

The lawsuit followed months of default notices and “reservation of rights” letters in which CWCapital’s counsel at Troutman Pepper alleged Group RMC missed payments, breached cash management protocols and made other violations of the loan agreement, according to court records reviewed by TRD.

Even though the loan doesn’t mature until June 2028, the lender is citing multiple missed payments related to the operation of the property as a reason for accelerating the due dates for the remainder owed on the $99 million loan that Group RMC took out on the asset in 2018, when it bought it from Blackstone for $132 million.

Group RMC had made repeated efforts to reach a workout before the lawsuit, however, according to people familiar with the matter. In addition to the discounted payoff offer of $52.5 million, the landlord also tried to modify the note and temporarily reduce debt service and sell “non-core” parts of the collateral, such as extra land on the campus, and the lender declined.

The proposed modification would have involved a $6 million equity injection from the landlord to create working capital liquidity and lease up vacant space left in the wake of recent tenant departures and downsizing. The lender may still opt into one of the landlord’s proposed workout solutions later on, to resolve the litigation.

Much of the vacancy can be attributed to the recent space cutback by Follett Higher Education Group, a major tenant whose lease reduction earlier this year to 45,000 square feet from 128,000 previously triggered a “specified tenant” default, according to loan and legal documents.

CWCapital began warning of such “trigger periods” last year, later layering on payment defaults and protective advance reimbursements as the property’s income slipped, the lawsuit shows.

The foreclosure filing puts added pressure on Group RMC, which over the past decade amassed a large portfolio of suburban office properties across the U.S. and specifically the Midwest.

Although the company has struggled to make good on loan agreements in the face of declining commercial property values, it has negotiated its way out of multiple financial disputes over its buildings, according to a person familiar with its business dealings.

Since the pandemic rattled the office market, the firm has put about $70 million into paying off lenders for its properties, using the money to strike extensions of maturity dates, discounted payoffs and other lifelines in a bid to work out its debts, the person said.

At least two other Group RMC loans for suburban Chicago assets had landed on lender watchlists as of earlier this year, signaling mounting stress across its portfolio.

The firm’s Executive Towers West complex in Downers Grove — three buildings totaling 681,000 square feet, also purchased in 2018 from Blackstone — was flagged after occupancy fell below 80 percent, despite posting a relatively healthy debt-service coverage ratio of about 1.3 last year.

Another $40 million loan to Group RMC tied to three properties, including the 427,000-square-foot Oak Creek Center in Lombard, the 118,000-square-foot Oakmont Lane in Westmont and a third in Indianapolis, was also watchlisted after debt coverage slipped just below break-even.

The properties are current on payments, suggesting Group RMC is injecting additional cash to cover shortfalls, much as it has tried at Westbrook Corporate Center.

Group RMC’s troubles are emblematic of a wider reckoning across suburban Chicago, where office values have plunged and special servicers are increasingly turning to the courts.

Loan data shows CMBS delinquency rates for suburban office loans climbing to post-pandemic highs this year, with workouts giving way to foreclosures as reserves run dry.

If CWCapital proceeds, the lawsuit — scheduled for its first hearing in April — could become one of the largest suburban office foreclosures ever in Cook County, underscoring the market’s harsh new reality: even borrowers willing to put in fresh equity are finding that lenders, too, are out of patience.