Will Next Realty’s LaSalle office loft sale cover its debt?

A Chicago loft building once decorated by handprints of the city’s most famous professional athletes is up for sale in another offering that could exemplify how far office values have fallen below their debt balances.

Next Realty has hired Cushman & Wakefield brokers Cody Hundertmark, Tom Sitz, Dan Deuter, Paul Lundstedt and Kelsey Berry to sell the 89,000-square-foot building at 620 North LaSalle Street, CoStar reported.

The River North building is 55 percent leased, and less than half of the tenants are on short-term leases. It’s possible that it sells for less than the $14.3 million loan on the property that Next Realty borrowed from Wintrust Bank in 2018 as part of a refinancing deal, people familiar with the property told the outlet.

“After 20-plus years of ownership and transforming the building to a fully automated modern timber loft office building, it is time for a new owner to steward the building for the next 20 years,” Marc Blum, president and COO of Next Realty, told the outlet. “We’re very proud of the transformation and the unique opportunity it creates for a range of users and investors.”

The struggling property is the latest sign of office distress in the Windy City. High interest rates, lingering remote work trends and fears of an economic downturn contributed to a record-high office vacancy rate last quarter.

In more recent months, a number of loan maturities have come due, forcing many office landlords to sell their holdings at a loss, return them to their lenders or face foreclosure litigations. CBRE Investment Management, for example, is nearing a sale of a 41-story tower on Michigan Avenue to R2 Companies for $70 million, six years after CBRE paid $121 million for the site, plus another $35 million in renovations.

Next Realty is the latest office landlord to face such challenges. The firm has owned the site since 2002 and performed a major overhaul in 2018 when it took out the loan, adding a large rooftop deck, new interior finishes, windows and elevators, the outlet said.

One of the building’s more unique characteristics is its history tied to the local sports scene. The building used to be the base of Morrie Mages’ area chain of sporting goods shops before that company was sold to MC Sporting Goods in 1987. Morrie Mages Sports started collecting handprints of famous athletes such as Chicago Bulls and Bears legends Michael Jordan and Walter Payton, and displayed them both inside and outside the building.

The building was leased out as Sports Authority store later on, and remained so until 2016 when that company filed for bankruptcy and Next had to refill the space. Coworking provider Spaces, part of flexible workspace firm IWG, had occupied the entire building on a deal signed before the pandemic, but moved out early during the health crisis, leaving Next with a hole once again.

It’s unclear if a buyer will try to revive the property as a traditional office building, convert it into residential use or raze it and build something from scratch.

— Quinn Donoghue