An under-the-radar Loop office landlord is facing a $62 million foreclosure lawsuit, more than a year after its initial default on debt that stemmed from DePaul University leaving its lease.
The amount allegedly owed by the owner of 55 East Jackson Boulevard, an affiliate of Virginia-based Firenze Group, has exploded over the past year, in part due its floating interest rate terms. The 22-story building spans 455,000 square feet.
The terms allowed the interest to surge as the Federal Reserve battled inflation with rate hikes, which Firenze was unlikely to foresee when it took out the loan in 2019, before the pandemic rattled the office market and sparked the inflation that led to constrained capital markets.
The loan was originated by a Ready Capital division, with a principal balance of $44 million, and the borrower now owes all the principal, plus almost $18 million in interest and fees, the lender’s lawsuit claims. The loan was packaged with other real estate debt and sold off as securities to financial institutions, though Ready appears to have continued playing a role in overseeing the loan. There’s also a judgment for more than $466,000 recorded against the property owner for a lien a contractor filed for unpaid work on the building, Cook County records show.
The foreclosure lawsuit adds to the historic wave of distress slamming Chicago’s office market due to higher interest rates than the pre-pandemic economy and lower tenant demand amid hybrid work arrangements, with older buildings that lack upgraded amenities feeling the worst pain. The East Jackson building was built in 1961.
Firenze is tied to investors David Perlstein and Sung il Moon. The firm also made a play for the 65-story tower at 311 South Wacker Drive in 2022. That eventually resulted in a broken deal after their $310 million purchase purported to be in the works never closed. That struggling 1.3 million-square-foot property, now just 61 percent leased, is still listed for sale with JLL.
Perlstein didn’t return a request for comment via social media, and an attorney who previously represented Firenze during its purchase of 55 East Jackson declined to comment. An attorney for the Ready Cap entity pursuing foreclosure didn’t return a request for comment.
Firenze last year also defaulted on 55 East Jackson’s ground lease deal with one of downtown Chicago’s most prominent commercial landlords, Marc Realty, according to the building’s loan servicer, KeyBank.
It’s unclear if Firenze remains in default on its ground lease, which it entered in 2019 on a promise to pay Marc rent. Firenze bought the leasehold interest in the building in 2019 from Marc for $64 million, using the Ready Capital loan to fund the acquisition, while the underlying ground remained under Marc’s control. A representative of Marc — which recently filed its own lawsuit over a separate ground lease deal it struck with a Greektown office owner — didn’t return a request for comment.
The financial trouble for 55 East Jackson began when DePaul left its 158,000-square-foot lease in the building. It’s unknown why its lender is just now pursuing foreclosure after more than a year of the loan being in default. Its original maturity date was August 2023.
The borrower is on the hook to pay about $19,000 per day in interest, including the default interest rate, which compounds the cost of debt more quickly when borrowers aren’t paying, according to the lawsuit.
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