State Street is still recovering from the financial distress that has roiled the Chicago Loop retail corridor for years, after the pandemic cut into downtown commercial property values.
Rialto Capital Advisors, acting as special servicer for a securitized mortgage loan trust, filed a foreclosure complaint Tuesday against New York-based landlord Jenel over the retail property at 36 South State Street, Cook County court records show. The move marks a downfall for a nearly 19,000-square-foot property that Jenel picked up with high hopes eight years ago.
The dispute centers on an alleged loan maturity default involving a $16.8 million balance Jenel assumed from Joe Sitt’s Thor Equities in 2018. At that time, Jenel bought the property from Thor for a total of $26 million, providing over $9 million in equity while taking on the property’s existing debt.
But when the loan maturity came in June, the balance remained unpaid, the lawsuit alleges. Now, Rialto is coming for the keys, alleging a total debt of $17.7 million, inclusive of default interest and liquidation fees.
Jenel is no stranger to major moves in the Windy City. The firm has long been a heavyweight in the luxury corridors of Chicago and New York, famously offloading an Oak Street luxury retail site in the Windy City for $120 million in 2021, and aggressively pursuing other North Side retail plays. However, the State Street building — once a desirable Loop property — is now caught in the crosshairs of a far tighter credit market compared to when Jenel purchased it.
Neither Jenel nor Rialto immediately returned requests for comment Wednesday.
The friction between these two players isn’t just limited to this Chicago storefront. The State Street suit comes as Rialto faces separate scrutiny over its role as a special servicer for a Jenel-owned property loan of $130 million that fell into alleged financial distress in New York.
In December, investor 400 Capital Management, which owns a piece of the loan for the Jenel-owned property at 215 West 34th Street in the Big Apple, sued Rialto, alleging the servicer engaged in self-dealing by artificially inflating fees and dragging out loan workouts to line its own pockets. Rialto fought those allegations, after changing its approach to the loan’s management, but 400 Capital claimed in a court filing in January the special servicer hadn’t gone far enough to address the concerns. The parties privately settled their lawsuit, with a judge granting approval to dismiss the case last month, New York court records show.
The State Street retail building maintained full occupancy and a debt service coverage ratio of 1.84 — plenty to cover the cost of its loan — as of September, according to loan servicer notes collected by Morningstar Credit. The property’s revenue for the first nine months of 2025 climbed to $1.9 million, following a 2022 lease transition to Five Below for 14,300 square feet, after former tenant Blick Art Materials departed for another building.
Despite the upward revenue trend and steady net operating income of $1.4 million through September of last year, the property’s appraised value plummeted nearly 48 percent from a decade ago, to $13.5 million in July, loan data shows. Consequently, the loan transferred to special servicing following the alleged June maturity default, and Rialto Capital Advisors is now moving forward with foreclosure proceedings.
For Jenel, the State Street foreclosure represents a rare blemish on a portfolio known for its stability. For Rialto, it’s another day in the trenches of special servicing, where the line between asset management and aggressive litigation is increasingly thin.
The Cook County court has scheduled a hearing for Sept. 28. Until then, one of the Loop’s most prominent retail corners remains in legal limbo.
Editor’s note: This story was updated to add that Rialto and 400 Capital settled their lawsuit in March 2026.
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