Alvarez & Marsal Facing Office Foreclosure in Chicago Loop

Another Loop office building is facing foreclosure, amid record office vacancy in Chicago.

Wilmington Trust, along with special servicer LNR Partners, filed a foreclosure lawsuit this month against the real estate affiliate of consulting firm Alvarez & Marsal over missed loan payments for 205 West Randolph Street, Cook County court records show.

Alvarez & Marsal stopped making payments on an $18.7 million loan in November 2023, the lawsuit alleges. Wilmington is seeking $17 million in unpaid principal and $5 million in unpaid interest.

The landlord has chosen not to fund the shortfalls between the cost of its debt service and the shrinking revenue generated by the property, and wants to hand the keys back to the lender for the 23-story, 199,000-square-foot building, according to loan data collated by Morningstar Credit.

Alvarez & Marsal also hired an inside property management company, Alvarez & Marsal Property Management, in 2018 to manage the building without notifying the lender, the lawsuit states. The terms of the mortgage require the borrower to notify the lender of a change in property management ahead of time and to hire an unaffiliated management firm.

The missed mortgage payments and the improper changes to property management constitute a default, the suit alleges. Representatives of Alvarez & Marsal did not respond to requests for comment.

The property had been struggling to hang onto tenants for some time.

In 2019, the Randolph property was 80 percent occupied. It fell to 63 percent leased last year, according to data from credit ratings agency Morningstar Credit. It brought in just $100,000 in net cash flow last year, and cost far more for Alvarez to service its debt than the rental revenues it generated, Morningstar shows. Higher property tax costs were also partly to blame, according to loan commentary.

Alvarez had taken on the property for $29 million, when it was sold by Michigan-based Farbman Group, the original borrower in the deal. An Alvarez affiliate assumed the property’s nearly $19 million in debt as part of Farbman’s sale, and the loan is scheduled to mature in early 2025.

Alvarez is in another downtown Chicago office deal that’s worrying its creditor.

A lender that gave $35 million in 2015 to an Alvarez affiliate that owns 205 West Wacker Drive has watchlisted that loan, which was originated in 2015. Watchlisting a debt is a move usually made when there’s a growing chance the lender doesn’t get fully repaid.

The 23-story Wacker Drive’s property has declined with the departure of Salesforce in 2021, and it hasn’t taken in enough cash flow in recent years to cover the costs of its debt, loan data shows.