Blackstone Hit With Foreclosure on Chicago Office Building

Goldman Sachs moved to foreclose on a $310 million loan to Blackstone, pushing for the sale of the private equity firm’s downtown office building known as River North Point.

New York-based Blackstone took out the loan in 2018 to pay off a $245 million mortgage with Wells Fargo in a refinancing of the 1.3 million-square-foot building at 350 North Orleans Street.

The loan matured in July 2023, and Blackstone is in default, according to court records. The foreclosure suit, filed by a trustee acting on behalf of Goldman Sachs, claimed that Blackstone now owes the lender $346.26 million, or $266 per square foot.

That includes a principal loan amount of nearly $309.8 million as well as nearly $35.9 million in regular and default interest payments.

Goldman originated the loan before chunks of the debt were sold off to other financial institutions in a commercial mortgage-backed securities offering. KeyBank is its special servicer and has been overseeing the debt since it went into default in 2023.

Goldman has a first priority lien on the 24-story office building and has asked a Cook County Circuit Court judge to order the property to be sold at a foreclosure auction to help repay the loan, court records show.

The property sits within a fund that has an internal rate of return of 14 percent, which accounts for the fund writing the investment in the Chicago property down to zero in 2022, a Blackstone spokesperson said in an emailed statement Wednesday.

The firm wrote down its investment in the property a few months ahead of the loan transferring into special servicing in 2023. Not only is the building likely not worth the balance of the loan given the remote work trends and interest rate hikes that have threatened many commercial landlords, but the landlord also put more than $54 million into its renovation in recent years, according to JLL marketing materials. JLL was hired to try to find a buyer for the property in 2023 but has not found any takers.

The debt is a non-recourse loan, meaning Goldman cannot go after any other assets as it seeks to be made whole.

River North Point’s conundrum adds to the already significant distress plaguing the Chicago office market, with record-high vacancy rates and a surge in heavily discounted property sales, particularly in downtown neighborhoods. The average downtown vacancy rate is over 25 percent, driven by companies downsizing their office needs amid ongoing remote work trends and high borrowing costs. The market has seen a wave of foreclosures and price cuts, as investors capitalize on the low values of struggling properties.

River North Point’s performance is a little worse than the latest downtown Chicago average, as it was 65 percent leased as of the end of 2023, when JLL was hired to sell it.

Over the course of 2023, the building appeared to be a drag on its landlord, which had to dig into its own pocket to cover revenue shortfalls at the property after accounting for the cost of its debt service, loan servicer data compiled by Morningstar Credit shows. Its debt service-coverage ratio for 2023 was 0.53, meaning the $38.7 million in revenue the property took in was just a little more than half of the amount needed to break even, perhaps due to the higher interest rate the landlord incurred after the default.

Blackstone bought 350 North Orleans for $378 million in 2015, before refinancing with the CMBS loan now heading toward foreclosure.

Blackstone is also on the lender side of Chicago office trouble, as it’s managing a $123 million loan for a struggling office tower at 444 North Michigan Avenue, after landlords Golub & Company and CIM Group defaulted.

In other news, Blackstone is shutting down its single-family rental subsidiary, Home Partners of America, which will close its Chicago headquarters and lay off 179 employees. The business is being transferred to another Blackstone subsidiary, Tricon Residential.