Spear Street Debt Tied to Troubled Chicago Tower Hits Market

JPMorgan Chase is shopping a soured $270 million loan tied to a big West Loop office tower in the latest sign of how deeply distress has seeped into the downtown market.

The debt is backed by 500 West Monroe, a 46-story building whose owner, Spear Street Capital, failed to pay off the mortgage when it matured in January. Crain’s reported that the bank hired brokers to market the loan, according to a flyer circulated to investors.

JLL is pitching the note as a path to take control of the 967,000-square-foot tower through a deed-in-lieu of foreclosure, a quicker and cleaner alternative to a courtroom slog. The debt amounts to $279 per square foot.

The Monroe Street property joins a growing list of Loop offices buckling under the pandemic’s long tail. Remote work eroded demand for big blocks of workspace, and higher interest rates pummeled valuations, leaving many landlords stuck when loans come due.

The Illinois Center campus, 330 North Wabash and 350 North Orleans are among the major addresses in some stage of distress.

Losing the keys would mark a brutal reversal for Spear Street. The San Francisco investor paid $412 million for the tower in October 2019, near the top of the market, and financed the deal with the JPMorgan loan. At the time, the building was 99 percent leased and downtown was on a record-setting run. Less than half a year later, the pandemic hit and the tenant roster began to fray.

Spear Street tried to steady the ship, investing $21.8 million into upgrades and striking a 10-year lease extension and expansion with Lockton in 2023, but the momentum wasn’t enough to offset the losses.

The tower is just over 75 percent leased with an average remaining term of 4.7 years.

Motorola Solutions put roughly a third of its space on the sublease market in 2022, and Antares Capital decamped for BMO Tower last year.

Adtalem Global Education and Newmark also plan to exit for newer buildings.

There’s no asking price for the note, but comparable deals suggest the tower is worth well below the outstanding loan balance. With downtown asset sales thin and lender takebacks increasingly common, the offering will test investor appetite for a large, aging tower in a market still unmoored from its largess a decade ago.

— Eric Weilbacher