601W, the New York investment firm founded by Mark Karasick, faces a $195 million foreclosure suit after failing to pay monthly loan payments on the Chicago’s Civic Opera House since May, marking the biggest default for a downtown office building since the pandemic.
Wells Fargo’s suit claims a venture led by 601W and Berkley Properties owes $154 million on loans and $28.3 million in fees, late charges and default interest on the 915,000-square-foot art deco landmark at 20 North Wacker Drive, Crain’s reported. The Cook County Circuit Court is expected to appoint real estate services firm Transwestern as the receiver next week.
Chicago offices have suffered as people stayed home in the past year. The business district’s vacancy rate climbed to 17.9 percent in the third quarter, according to JLL, which expects the rate to rise as more sublease space becomes vacant.
The 44-story Civic Opera House was struggling to fill the building even before the pandemic. Law firm Cassiday Schade exited its 60,000 square feet of offices in 2018.
The pandemic also took a hit on two of its largest tenants, co-working providers Bond Collective and TeamWorking at TechNexus, which took up about 14 percent of the building. Smaller tenants also failed to pay rent, according to a statement by the owners.
A February appraisal of the building valued it at $165 million, a 25 percent cut from $220 million in 2015, when the owners of the building refinanced with the current $164 million loan, according to data collected by Bloomberg and cited by Crain’s.
601W and Berkeley are still renegotiating terms of the building’s mortgage with Rialto Capital, a special servicer that monitors the loan on behalf of investors in commercial mortgage-backed securities, Crain’s said.
601W owns an office tower at 1 South Wacker Drive and is redeveloping a Northern Trust property at 801 South Canal Street into a multi-tenant office building. The company sold Prudential Plaza in the East Loop to Sterling Bay for $680 million three years ago.