R2, Heitman Avoid Foreclosure with Truist Office Debt Sale

Commercial real estate firms R2 and Heitman have a new lender on their struggling portfolio of three West Loop office buildings, signaling the properties are likely to soon be taken over through foreclosure.

Maryland-based Beltway Commercial Real Estate bought the $42 million loan note — probably at a substantial discount from its face value — tied to 641 West Lake Street, 901 West Jackson Boulevard and 130 South Jefferson Street. R2 and Heitman have owned the buildings jointly since 2019.

Loan note sales are one avenue lenders are considering more often as office distress continues to mount across the United States. Post-pandemic work-from-home policies have hammered the office market, but lenders haven’t all pounced at once. Some have offered extensions on under-performing loans rather than file foreclosure lawsuits as soon as loans mature.

Beltway earlier this year initiated foreclosure on a River North loft office building at 730 North Franklin Street owned by the Feil Organization, after buying that property’s $15.3 million loan note in October.

Beltway took over the $42 million loan for R2 and Heitman’s three West Loop office buildings in early April, property records show. The loan was originated by Truist, which offloaded the debt to Beltway. It’s unclear what the debt sold for, but it could’ve traded for as low as half of the loan balance, based on what people familiar with the offering said when it was listed.

When Truist put the $42 million debt on the market, R2 and Heitman hadn’t technically defaulted on the loan, but it was in cash management. That means its excess cash flow was being used to cover debt service costs, people familiar with the offering said. The debt sale was a successful attempt by Truist to get ahead of the loan’s August maturity.

The Heitman and R2 venture bought the properties, which total 240,000 square feet, for $65 million in 2019.

The buildings were 90 percent leased at the time, but just 51 percent leased at the time of the loan sale, marketing materials show.

JLL’s Tom Hall brokered the sale. He did not respond to requests for comment.

R2 has also been on the other side of office distress in recent months. The firm paid $60 million for the office tower at 150 North Michigan Avenue, a drop of about 50 percent from what the seller paid for it in 2017. Heitman in recent weeks also paid $47 million to buy a Brooklyn self-storage property.