Blue Star Properties is buying out its own lender on a West Loop building at a steep discount. It’s resetting the clock on a long-term bet many landlords have abandoned in Chicago’s battered office market.
The Chicago-based firm purchased a $38.9 million mortgage backed by the 10-story office building it owns at 328 South Jefferson Street, according to Blue Star principal Craig Golden. The move recapitalized the 293,037-square-foot property about five months after Blue Star and Wells Fargo quietly put it up for sale in an effort to resolve the overdue debt, Crain’s reported.
Golden declined to disclose the price paid for the loan, but a source familiar with the deal said Blue Star shelled out roughly $50 per square foot, or just over $14 million, according to the publication. That kind of haircut has become common, as downtown office values crater under the weight of remote work and higher interest rates. What’s less common is an owner stepping in to buy the paper rather than handing over the keys.
The transaction marks an escape from a long stalemate for Blue Star. With the loan past maturity, the firm had been effectively sidelined from pursuing new leases for nearly two years, Golden told the outlet.
Wells Fargo, which inherited the loan through its 2008 acquisition of Wachovia, increased the debt multiple times as Blue Star leased up the building, according to Cook County records. The buyout locked in a loss for the bank, but cleared the way for Blue Star to move forward.
The firm financed the debt purchase with a new loan from Aurora-based Old Second National Bank. Golden said Blue Star plans to refresh the lobby and common areas as it ramps up leasing efforts.
The building was 61 percent leased when it hit the market over the summer, according to a Cushman & Wakefield marketing flyer. It has 27 tenants, a weighted average lease term of 3.1 years and space to accommodate a tenant of up to about 30,000 square feet following the departure of third-party logistics firm Total Quality Logistics.
Blue Star also recently bought 2 North Riverside Plaza for a fraction of its pre-pandemic value. It’s betting on nearby momentum, including The Chicago School’s medical campus at 400 South Jefferson and a planned 198-unit apartment project Blue Star is developing across the street.— Eric Weilbacher
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