Market Street Gives Up West Loop Office Building

Timing couldn’t have been worse for Market Street Real Estate Partners’ investment in a West Loop office building right before the pandemic. It will end in a giveaway to the Miami-based landlord’s lender.

Market Street, led by principal Danny Warman, this month surrendered the 12-story building at 209 West Jackson Boulevard through a deed-in-lieu of foreclosure, CoStar reported. The lender on a $25 million debt tied to the property, ACRES Capital, will now take ownership of the asset, while Market Street evades foreclosure litigation.

It’s the latest sign of office distress in Chicago. The remote work movement, augmented by the pandemic, already dealt a huge blow to office landlords. More recently, high interest rates, banking failures, company layoffs and fears of a possible recession have compounded the issue.

Vacancy rates reached a record-high in the Windy City last quarter, and a number of building owners have been forced to sell their holdings at a steep discount, hand the keys back to their lenders or face foreclosure. Some office landlords have spent millions on renovations to stay competitive, while others undergo office-to-residential conversions or another form of adaptive reuse.

Even some Class A office buildings, once thought to be immune to distress, are now facing these challenges.

But demand has plummeted in particular for older Class B and lower quality buildings, such as Market’s property on Jackson Boulevard. The 143,000-square-foot building has a vacancy rate of 26 percent, above the downtown average of about 22 percent as of last quarter.

Market Street refinanced 209 West Jackson over three years ago with the loan from ACRES, a Uniondale affiliate. That replaced a previous loan the landlord took out in 2018, when it bought the property for $23.5 million.

It’s unclear how much Market Street still owed ACRES at the time of the lender’s deed-in-lieu takeover. The lender last year also seized a 24-story office and retail building at 65 East Wacker Place from a borrower that previously owned it. Then, ACRES sold it to Intersection Realty Group for $19.25 million, short of the $24.4 million owed to an ACRES venture.

Intersection plans to convert part of the Wacker Place building into apartments. It’s unknown if ACRES will target a sale to a developer with a similar goal in mind as its exit strategy for the Jackson Boulevard asset.

— Quinn Donoghue