Sterling Bay’s lender has lost more confidence in the developer’s delayed Lincoln Yards plan as the developer is up against key deadlines to pay off big debts tied to the project.
Bank OZK, one of the nation’s largest construction lenders, conceded that it’s unlikely to be paid back another $17 million borrowed by Sterling Bay for the project, according to public disclosures the financial institution made earlier this year.
The move to write down a second big chunk of the $128 million loan that the Chicago-based developer took out in November 2019 follows Bank OZK last year making a $21 million chargeoff and placing the debt on substandard non-accrual status — a label denoting high risk of default.
After the initial chargeoff, Sterling Bay made a $1.9 million payment to the bank last quarter to bring it current on interest payments, and it received another short-term extension of the debt’s maturity date — it had previously received multiple maturity extensions, including one last year before the first writedown.
With Bank OZK’s concession that $38 million is likely unrecoverable on the deal, and Sterling Bay’s latest payment, the total loan balance was reduced to $88 million, according to the lender’s public disclosures. The debt level was 72 percent of the property’s appraised value as of June, the lender said, pegging the estimated market price for the land at about $122 million.
Dallas-based private equity firm Lone Star Funds partnered with Sterling Bay to buy the site encumbered by the Bank OZK loan as part of a 53-acre assemblage. The ownership venture spent $136 million in 2016 to buy the former A. Finkl & Sons steel property that’s subject to the loan, as the developer worked to solidify its grip on land along the Chicago River between Lincoln Park and Bucktown, public records show.
Lone Star and Lincoln Yards’ other financial backer, JP Morgan Asset Management, has since sought to exit the project by selling its stakes in the land holdings at a discount. Those decisions sent Sterling Bay into the market for new capital partners, but it’s so far been unsuccessful in its search for an investor willing to rescue the stalled project.
“We all are committed to the transformative vision of Lincoln Yards and are in active discussions,” Sterling Bay said through a spokesperson. Bank OZK declined comment and referred questions to the borrower.
Sterling Bay last year was cozying up to Los Angeles-based investment firm Kayne Anderson as a potential investment partner, after Chicago’s teacher pension fund passed on Sterling Bay’s courtship as the developer sought a $300 million infusion. But so far Kayne Anderson and other investors haven’t entered the picture.
Bank OZK noted the land loan accounted for less than 1 percent of its total construction and land development loans.
But it’s not the only deal the bank has with Sterling Bay within the vicinity — there’s a second running up against its maturity date without any revenue coming in from the property at 1229 West Concord Place, Cook County records show. That’s next door to Lincoln Yards, where Sterling Bay completed a 320,000-square-foot lab and office building aimed at life sciences tenants. Yet it hasn’t been able to draw a tenant and remains fully vacant.
The landlord has a separate $125 million construction loan from Bank OZK that it needs to pay off or refinance by a mid-September maturity date, unless the developer scores another maturity extension from the lender.
Sterling Bay CEO Andy Gloor publicly blamed former Chicago mayor Lori Lightfoot’s administration for Lincoln Yards delays. He accused it of dragging its feet in approving a deal with a Wisconsin’s Public Finance Authority plan that would have kickstarted infrastructure work on the development site.
Lightfoot rebuffed that take, instead claiming that Sterling Bay didn’t bring the city into the discussion of the proposed financing deal until it had been fully negotiated, forcing city officials into a difficult position of verifying that taxpayers wouldn’t be harmed. By the time the deal was ready to finalize, the economic environment shifted as interest rates rose, sinking a groundbreaking on infrastructure.
Sterling Bay also bought more time at its Fulton Market office building at 333 North Green Street after haggling with another lender over a proposed paydown. The developer and its partner in that property, JP Morgan Asset Management, made a $19 million payment to their lender Wells Fargo to further extend the maturity date on a $230 million loan against the 553,000-square-foot building.
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