After missing months of mortgage payments, Loop retail landlord Isaac Shalom of One North State Street is facing a $50 million foreclosure lawsuit.
The alleged default by the New York-based investor is part of a broader trend of struggling retail properties along the famed shopping corridor through the heart of downtown Chicago. Decreased office occupancy since the pandemic has reduced foot traffic even along key strips such as State.
The loan, which was originated by German American Capital Corporation in 2014, was sold into the securitized debt market, making much of the details surrounding the property’s performance public.
A representative of the lenders sued to foreclose Dec. 1 in Cook County court, alleging that Shalom hadn’t made a mortgage payment since April. Representatives of the lenders contacted Shalom in June to demand he pay the loan’s remaining balance off immediately, claiming the default triggered an accelerated due date for the $60 million loan. The original maturity date for the loan was supposed to be in February 2024, and a $50 million balance remains.
Representatives of the borrower and the lender did not return requests for comment.
At the time the lender’s June letter was sent, One North State had a strong occupancy rate of 93 percent. It was far better than the Loop average, which was threatening to drop below 70 percent as of earlier this year. But leases for the property’s two largest tenants, TJ Maxx and Burlington Coat Factory, expire next year. They make up 76 percent of the space.
Plus, Burlington recently struck a deal that reduced the landlord’s revenue from its previous lease, in exchange for extending its tenancy at the property for another year until March 2024. The clothing merchant is now being charged 10 percent of its store’s gross sales, which “significantly reduced” its rental rate, according to credit ratings agency DBRS Morningstar.
Refinancing options have been slim as interest rates remain on the rise and banks scale back on lending in downtown retail centers. Like many cities, Chicago’s retail sector has encountered bumps in its road to recovery from the pandemic.