Debt On Loop Towers That Figured In Google Deal Sold For 33% Discount

Debt against the Loop towers that were a key to paving the way for Google to expand in Chicago sold for a discount of just more than a third from the original loan.

Mike Reschke’s Prime Group bought Union Bank’s loan of $191 million on the 1.2-million-square-foot, two-building complex at 115 South LaSalle and 111 West Monroe streets. He paid $120 million, or around $100 per square foot, marking a loss of about $71 million for the lender, according to a person familiar with the deal.

Reschke came out on top of competitive bidding for the debt.

Union Bank hired JLL to market the debt for sale after the property’s previous owner––a venture of South Korea’s Samsung Life Insurance––lost its two largest tenants, BMO Harris Bank and law firm Chapman & Cutler. Their moves into the newly built BMO Tower at 320 South Canal Street left the LaSalle and Monroe offices almost entirely vacant and prompted Union Bank to swallow the loss on its loan.

Union Bank declined to comment.

Reschke’s subsequent deal to flip one of the buildings he acquired in assuming the debt––the LaSalle tower––to the State of Illinois for $75 million allowed Google to take the entire Thompson Center to the north at LaSalle and Dearborn streets. The state had previously planned to move back into the Thompson Center, where it has kept various offices for decades, based on Reschke’s plan to put as much as $280 million into renovating the building.

Reschke set out to revise that plan when Google came knocking for more office space in Chicago, and said it wanted the entire 1.2 million square feet in the Thompson Center.

Reschke and the state obliged once the deal for the buildings on LaSalle and Monroe streets fell into place.

The developer called it “a miracle” that the former BMO building became available at a discount just as Google was on the hunt. He agreed to overhaul the Thompson Center as part of a new deal that calls for him to buy it from the state for $105 million and prepare it for a 2026 Google move-in. That required the state to agree to buy a 625,000-square-foot portion of the South LaSalle and Monroe complex from Reschke for $120 per square foot, up from the $100 or so per square foot he paid for the entire property.

Reschke’s sale to the state also lowered his basis on the Monroe portion of the property to $45 million, or a little less than $80 per square foot. Such discounts on vintage Loop towers from the more than $200 per square foot recently fetched by others with higher occupancy rates will be necessary for developers such as Reschke who plan conversions of office towers to new uses like apartments.

Transforming offices into apartments, for instance, is a pricey proposition. Financial barriers are expected by Chicago’s urban planning experts who have pushed for some of the pandemic-battered Central Loop buildings facing high rates of office vacancy to be turned into apartments.

Reschke plans to keep the lower 13 floors of the Monroe portion of the former BMO property as offices and turn the upper 10 floors into as many as 300 apartments.

Owners of other Chicago buildings facing financial risk as office tenants cut back on real estate amid the pandemic aren’t dealing with as much vacancy as Samsung was on the former BMO property, and other distressed property sales will likely occur closer to between 10 and 20 percent off the cost of their debt, the person said.