Namdar Buys Loop Office Debt at 73% Discount

Namdar has made another play for distressed Chicagoland real estate, this time in a section of the Central Loop that developers are preparing to transform with a slew of office-to-residential conversions.

The Great Neck, New York-based firm and its partners Mason Asset Management and CH Capital Group bought the loan note tied to the landmark 47-story office property at One North LaSalle Street, a Namdar executive confirmed. While the company didn’t comment on the price, people familiar with the deal said it paid a little less than $20 million, or about $40 per square foot, to obtain the building’s debt position, a discount of nearly 73 percent from the loan’s remaining balance of $74 million.

It puts Namdar in position to seize the 494,000-square-foot asset from its owner, Utah-based Bridge Investment Group, which faces a daunting loss on the building due to struggling to keep it financially viable after the pandemic supercharged remote work trends, and interest rate hikes cut into property values, making refinancing more difficult.

The deal is one of several Chicago office loan note sales to close in recent months at discounts from their face values and look to be setting up their buyers to foreclose on building owners and wipe out their equity, as record-high vacancy and interest rate hikes roil the office market. Loan note buyers are entitled to seek recovery of the entire debt balance, even when they buy it at a discount from the full face value, meaning dodging foreclosure is usually insurmountable for the borrowers behind the deals.

Bridge bought the property for $113 million in 2018, taking out an $85 million loan to fund the acquisition. The loan matured in October 2022, and Bridge failed to refinance the debt, even after paying down more than $10 million of its balance in 2021. The building’s occupancy declined from the time of Bridge’s purchase, unable to withstand the impact of the dropoff in demand for office space sparked by the pandemic. It was 56 percent leased as of December, down from 76 percent in 2021 when Bridge paid down a portion of the debt, according to publicly available loan data.

The loan was marketed for sale by KeyBank, which was hired as the special servicer by a group of bondholders that previously held the debt as part of a commercial mortgage-backed securities package. Bridge didn’t return a request for comment, and the Newmark brokers who represented KeyBank and the bondholders in the sale declined to comment.

It’s unclear how Namdar plans to capitalize on its purchase, but the firm has a reputation for taking on distressed assets. Namdar last year also bought the Louis Joliet Mall out of distress last year for $31 million.

Some buyers of Chicago office — such as the Oregon-based Menashe Properties that picked up 230 West Monroe Street for $45 million last year in a big discount from its last sale — have pledged to make a go in the office market by trying to refill properties with tenants. Yet others are looking at converting buildings into apartments, including some near One North LaSalle, that are meant to help the Central Loop diversify from a vacancy-plagued office hub into a mixed-use neighborhood where more people live and work.

Mayor Brandon Johnson’s administration plans to allocate significant public subsidies, continuing an initiative started by former Mayor Lori Lightfoot, by directing $151 million in tax-increment financing towards four projects aimed at transforming outdated office spaces on and near LaSalle Street into over 1,000 residential units, including developments such as 30 North LaSalle Street and 111 West Monroe Street.

Namdar’s move to snag the One North LaSalle debt is far from the only distressed loan note sale in play in Chicago.

Maryland-based Beltway Capital recently bought debts tied to a portfolio of West Loop office lofts owned by Chicago-based firms Heitman and R2 Companies, as well as a River North office loft owned by the Feil Organization. The buildings securing the loans are struggling with vacancy, as is all of downtown Chicago, which reached another record low occupancy rate of less than 75 percent last quarter, according to CBRE.

Plus, JLL is marketing a $151 million loan note tied to 200 South Wacker on behalf of lender Bank of China, a sale likely to close at a significant discount from the debt balance. And Chicago-based developer Scott Goodman is working to buy the loan note tied to 161 North Clark Street, where lender Societe Generale is working to foreclose on the $230 million debt owed by the building’s owner, a venture of the South Korean postal service.

Newmark brokers Jim Postweiler, Peter Harwood, Derek Fohl and Jack Trager represented the loan note sellers in the deal with Namdar.