Office Loan Woes Grow In Chicago Area

Two more Chicago-area office landlords are in danger of defaulting on their loans, the latest victims of record vacancy rates in both the suburbs and the central business district.

Canadian real estate firm Adventus Realty Trust is more than 60 days delinquent on its $24 million loan against the four-building Oak Brook Office Center in the western suburbs, Crain’s reported, citing data collected by Bloomberg.

Separately, Dallas-based Lincoln Property Company’s $94 million loan against the Central Park of Lisle office complex, also in the western suburbs, was placed on a watch list this month after its largest tenant cut back on space, the outlet reported.

The loan woes come as suburban Chicago offices are emptier than ever, having set a new high in each of the last five quarters with the latest rate at 27.1 percent, JLL found. Downtown vacancy also hit a record 21.2 percent in the city’s central business district last quarter as new buildings delivered without tenants. Empty offices are degrading property values and making it difficult for borrowers to refinance their properties.

Adventus is in an especially tight spot, with its loan due to mature in April 2023, after borrowing the money in 2013 to finance its $33 million purchase of the 312,000-square-foot building in Oak Brook, with a balance of around $20 million today, Crain’s reported. It was almost 90 percent leased for the first few years of Adventus ownership, then it dropped to the mid-70s in 2017, slashing its net operating income to just more than $2 million last year. The pain grew as writing utensil maker Sanford, Adventus’ largest tenant, let its lease expire, plus eight other tenants had lease expirations this year.

Adventus is facing another headache in Rosemont, where it owns the Riverway office building, Crain’s reported. The property lost a major tenant just before the pandemic began and was just 65 percent leased at the end of last year, according to data collected by Bloomberg tied to Adventus’ $128 million CMBS loan on the property. The building generated $5.3 million in net cash flow last year, below the landlord’s $8.2 million in debt service for the year.

Loan problems started building for Lincoln Property’s Lisle complex at 4225 Naperville Road and 3333 Warrenville Road after its largest tenant, Armour Eckrich Meats, exercised an option to reduce its space in the property, and pay a $1.5 million fee to the landlord to do so, Crain’s reported.

Lincoln bought the 690,000-square-foot property in 2017 for $129 million. Its debt service more than doubled in 2021 due to a jump in the debt owed on a secondary piece of the mortgage. The rent was no longer able to cover the debt service, Crain’s reported, again citing the data collected by Bloomberg.

[Crain’s] – Sam Lounsberry