More lenders have shown they’re not afraid to own troubled Chicago office buildings.
The latest two moves at a pair of distressed downtown properties made by non-bank lenders — New York Life Insurance and Washington, D.C.-based National Real Estate Advisors — hints that there’s hope for an office comeback among creditors, despite the onslaught of trouble landlords have faced.
After exploring a sale of a nearly $57 million non-performing loan note tied to 30 West Monroe Street, a 251,000-square-foot property known as the Inland Steel building, New York Life Insurance seized the Loop asset from the borrower instead, Cook County property records show. New York-based investment firm Capital Properties took out the loan as part of a refinancing in 2016, after paying $57 million to buy the property in 2007.
Meanwhile in River North, National Real Estate Advisors has started to plot a turnaround for 448 North LaSalle Street, a 175,000-square-foot office building it seized last year from its developer, an entity tied to Chicago-based Jay Javors that surrendered the building amid a series of lawsuits involving embattled multifamily firm CA Ventures. (Javors’ firm Midwest Property Group is still involved in the building’s management.)
National loaned $70.5 million toward the building’s construction in late 2019, but rather than seek a sale at a discount to that amount for the mostly vacant property, it has hired brokerage Stream Realty to try to lease up the 120,000 square feet of available space. CA Ventures previously planned to lease a big chunk of the building but never moved in.
The lender has also invested in bringing Electric Shuffle into the LaSalle Street building. That company pairs cocktails with high-tech shuffleboard and has locations in New York, Dallas, Austin and over the pond in London, Leeds and Manchester, with Chicago labeled as “coming soon” on its website. It’s set to open in the spring.
While it’s unclear how long National or New York Life plans to hold onto their struggling properties, their recent moves suggest they’re open to putting a little bit more money into them to aid in their recovery.
Rather than investing further into the rough office market, other lenders have preferred to let new buyers try to lead the sector’s revival by seeking short-sales or loan note sales at discounts to face values, as the post-pandemic contraction in demand from tenants and interest rate hikes over the past two years put major landlords underwater on their mortgages.
“This is an extraordinary opportunity for businesses to establish themselves in one of Chicago’s most dynamic submarkets,” said Stream’s Mark Gunderson, who’s leading the leasing team at 448 North LaSalle.
Capital Properties didn’t respond to a request for comment. New York Life and the JLL brokers it previously hired to sell the Inland Steel building’s loan note didn’t return requests for comment.
The Inland Steel building — a city-designated landmark completed in 1958 — was just 61 percent leased last year when JLL began marketing the loan note, down from the 74 percent average for downtown, which marked a record low for the quarter. Capital Properties explored selling the 19-story property in 2019 while it was more than 80 percent leased, with a goal to fetch more than $85 million, but it never sold.
At 448 North LaSalle, WeWork managed to work out a deal to keep its 55,000-square-foot coworking space in the property through its bankruptcy.
CA Ventures, which once planned to lease 70,000 square feet in the property, is still working out litigation with its Canadian former investment partner QuadReal, which sued an entity tied to the Chicago-based firm’s CEO Tom Scott over a leasing deal at the property it claims it never intended to enter.
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