Situs to Foreclose on Big Loop Office Tower Loan

A saga of financial trouble for the landlord of Chicago’s office tower at 181 West Madison Street is taking a grim turn that has become all too familiar in the Loop.

Special servicer SitusAMC is preparing to initiate foreclosure proceedings against SinOceanic I Ltd., an affiliate of China’s HNA Group that emerged from bankruptcy in 2023, according to loan servicer notes collected by Morningstar Credit. The path to foreclosure jeopardizes a $240 million debt package tied to the 50-story skyscraper.

Situs’ move against SinOceanic comes as the Loop continues to grapple with a deep malaise, defined by plummeting office property valuations and a corporate exodus toward smaller, more efficient work spaces. The 946,000-square-foot tower is the latest victim of this low-demand market.

The immediate trigger for the loan’s transfer to special servicing in January was an alleged “imminent monetary default” set to cause a $1 million shortfall the building’s lender was expected to suffer for last month’s payment cycle, loan data shows.

As part of HNA’s bankruptcy proceedings in 2023, the building’s anchor tenant Northern Trust — long its largest occupant — executed a two-year lease extension, pushing its expiration from the end of 2025 to Dec. 31, 2027. While the extension provided some short-term stability, it came at a steep cost: The banking giant slashed its space by nearly half, contracting from 400,000 square feet to just 225,000 square feet, effective at the start of this year.

To make matters worse for the landlord’s bottom line, the deal included a four-month free rent period that began this year. Consequently, the property’s landlord is short on its loan payment and allegedly either unwilling or unable to cover the gap out of pocket, loan data shows.

Situs didn’t return a request for comment, and neither did an attorney who represented SinOceanic during its purchase of the property out of HNA’s bankruptcy. Northern Trust also didn’t return a request for comment.

This marks a full circle of distress for the property. HNA’s initial ownership entity filed for bankruptcy in 2021. Following an equity auction for the property in 2023, HNA affiliate SinOceanic paid $2 million for the building, and assumed the $240 million debt with hopes of stabilizing the property. As part of the deal, SinOceanic agreed to contribute additional building rent revenue toward loan reserves for the purposes of funding tenant improvements and lease commissions, court records show.

Those hopes have collided with the reality of a 60 percent operating expense ratio, and an occupancy rate — that while recently pegged at 86 percent — is set to slide as the Northern Trust contraction takes full effect.

Also during HNA’s bankruptcy, Manhattan’s largest office landlord, SL Green, gained a claim in the ownership of the tower at 181 West Madison briefly, while it worked to collect a $185 million arbitration judgment it had won against HNA. However, people familiar with the property said SL Green hasn’t had an interest in the Chicago tower for several years since the bankruptcy case. SL Green also took over ownership of 245 Park Avenue in New York as part of its dispute with HNA, though that building could be sold this year, SL Green has suggested.

With the West Madison building’s loan maturity date looming in December, and the workout strategy now officially shifted to foreclosure, the property, completed in 1990, serves as yet another example of the broader struggle facing Chicago’s aging office stock.

While the property is almost certainly much less valuable today than the $375 million appraisal it fetched in October 2019, it’s unclear whether investors in its commercial mortgage-backed securities loan will also face losses. Before its bankruptcy, HNA Group paid $350 million for the property in 2017, briefly tried to sell it in 2018, and then ended up refinancing with the $240 million loan in 2019. The property generated nearly $13.4 million in net cash flow for the 12 months ending in September, according to loan data. Still, ratings agency Fitch reported in June of last year that it “no longer considers … 181 West Madison to have investment grade.”