Real Capital Solutions Nears Deal to Buy More Chicago Office

A Colorado investor making big moves on the Magnificent Mile is zeroing in on a major Loop office tower that’s staring down a ticking mortgage clock.

Real Capital Solutions is in advanced talks to buy 311 West Monroe Street, the 390,000-square-foot building Chicago developer Sterling Bay has been shopping for months amid a fast-approaching payoff date on its debt, Crain’s reported, citing sources familiar with the negotiations.

Real Capital is already under contract to buy 401 North Michigan after offering more than $130 million.

Its bid for the West Monroe building would deepen the bet that Chicago’s office market is near a low point. Real Capital’s bid is not a done-deal, as the firm recently agreed to buy 190 South LaSalle before abandoning the offer.

Sterling Bay’s urgency is clear.

It refinanced 311 West Monroe in early 2020 with an $82.5 million senior loan later sliced into Commercial Mortgage-Backed Securities bonds. The maturity date was pushed from March to July this year, then to this month as Eastdil Secured’s Bryan Rosenberg worked to find a buyer.

Complicating matters is a $10 million guaranty tied to Sterling Bay Capital Partners II fund. If the building sells for less than the loan balance or defaults, the fund’s investors are on the hook.

The scenario marks a dramatic reversal from Sterling Bay’s pre-pandemic success with the property.

The firm bought the mostly vacant tower for $60 million in 2017, then poured $43.4 million into upgrades — new elevators, amenities and a lobby overhaul — setting off a leasing streak.

Hospitality firm Convene took 90,000 square feet in 2018, followed by Mayer Brown with 56,000. West Monroe Partners signed on for nearly 180,000 square feet in 2019, filling the last of the tower’s vacancy and helping underpin a 2020 appraisal of $169 million.

Rising rates and the pandemic upended that equation, however. Even though the building is fully leased, Sterling Bay’s floating-rate senior loan drove annual debt service above the building’s cash flow in 2023 and 2024, according to Bloomberg. Last year the tower generated $7.4 million in net cash flow against $8.6 million in debt service.

That’s where Real Capital sees opportunity. Long known for scooping up distressed commercial properties, the firm has publicly committed $3.5 billion to office acquisitions over the next three years. With lengthy lease terms secured for West Monroe (through 2032) and Mayer Brown (through 2030), 311 West Monroe offers the kind of income durability sought after in a shaky market.

— Eric Weilbacher