Aon Center Loan Hits Special Servicing

A special servicer started overseeing a portion of a massive loan on one of Chicago’s tallest skyscrapers this month. It claims an office lease the property’s New York-based owner 601W Companies inked with a health insurer’s nonprofit affiliate didn’t meet the lender’s standards.

The step by the Barry Sternlicht-owned special servicer LNR Partners to supervise a $43 million tranche of the $678 million debt package secured by the 83-story Aon Center comes months ahead of the loan’s July maturity. The loan is under the microscope of those who closely follow the commercial mortgage-backed securities market, as an indicator of how big office players may navigate loan maturities requiring balloon payments amid a rising interest rate environment.

LNR, one of the special servicers lenders use to work out problematic CMBS loans, claims that 601W didn’t get clearance from its lenders to issue a 95,000-square-foot lease to the Blue Cross Blue Shield Association, the nonprofit functioning as the national association for 34 Blue Cross & Blue Shield insurance companies, according to a Feb. 10 report LNR provided to credit ratings agency DBRS Morningstar. The failure to get approval constitutes an event of default on the loan by 601W, the report said.

The borrower secured a $536 million senior loan against the 2.8 million-square-foot office property in 2018 from JPMorgan Chase Bank, which then securitized the debt by selling it off to investors in the CMBS market, making some details of the property’s performance public. The property also obtained a $141.5 million mezzanine loan subordinate to the larger loan that also matures in in July.

It’s unclear, however, what the lender’s issue is with the lease that was signed in June, as the terms were not made public, and the lender’s requirements for office leases haven’t been disclosed either.

The brokerage Telos Group represented 601W in the lease negotiations and disputes that it didn’t get a green light for the lease. Aon Center “successfully secured approval from each of its lenders to move forward with the Blue Cross and Blue Shield lease,” a Telos Group spokesperson said in an email Monday.

601W and LNR’s parent Starwood Property Trust did not respond to requests for comment. Likewise, Wells Fargo, which was assigned as a trustee over the loan by JPMorgan, did not respond to a request for comment. KeyBank, master servicer for the loan, declined to comment.

With the the total $678 million debt package on the tower coming due July 1, it’s unlikely 601W could borrow as much money against it today. The loan required payments of only the interest at a 4.63 percent rate, meaning a balloon payment for the principal amount of the loan is coming due all at once this summer.

If the landlord wants to hold onto the property, it may have to leverage more equity to make up the gap between what it could borrow against the asset at today’s higher rates versus five years ago, when the tower was appraised at $824 million. Its estimated value has since slid to $780 million, according to DBRS Morningstar.

601W purchased the 2.8 million-square-foot Class A office tower for $712 million in 2015. The firm is managed by Michael Silberberg, Victor Gerstein and Mark Karasick.