Blackstone seizes 444 N. Michigan Ave via deed-in-lieu

Blackstone Mortgage Trust, the commercial lending arm of real estate investment giant Blackstone, is taking back the keys to a struggling Magnificent Mile office building after a loan extension and a lender-led sale failed to save it.

The 36-story building’s owners, a joint venture of Chicago-based Golub & Company and Los Angeles-based CIM Group, bought the property for $138 million in 2018 and later refinanced it with a $123 million loan. The borrowers scored an extension early last year after paying the balance down to $95 million.

But when the loan’s new maturity date came and went in December, the loan was transferred to special servicing with Blackstone Mortgage Trust.

Blackstone Mortgage Trust hired CBRE to market the building last year but did not find any takers.

At the time, the New York-based firm was already aware that the 517,500-square-foot building would likely trade for far less than the loan’s value, which is $238 per square foot.

Despite investing $11 million on upgrades to the building first completed in 1976, Golub and CIM have failed to boost the building’s occupancy since the pandemic, and it was at 61 percent leased when it was transferred to special servicing earlier this year.

The lender is confident however that brighter days are ahead for the property, which represents a minuscule portion of its overall portfolio.

“This asset is well-located and positioned to capture leasing demand despite market headwinds. As the largest owner of commercial real estate globally, we are well equipped to manage this asset for success,” a representative of Blackstone Mortgage Trust said.

Representatives of CIM Group and Golub & Co. did not immediately respond to requests for comment.

It’s unclear what the next steps for the building will be. Should Blackstone again seek to offload the asset it will enter an oversupplied market in Chicago. Office vacancy rates hit a new high of 26.5 percent by the end of March, according to CBRE.

While institutional owners have shied away from Chicago, family offices have stepped in.

Since 2021, The family behind European alcohol giant Campari Group has made over $100 million in real estate investments in Chicago across retail, office and multifamily.

Along with Chicago-based developer R2, Campari started construction last week on the city’s first publicly subsidized office-to-residential conversion, at 79 West Monroe.

And just North of 444 North Michigan, Connecticut-based Commonwealth Development Partners is planning on an office-to-residential conversion of 500 North Michigan Avenue after that building’s occupancy plummeted under its previous, complicated ownership group.

Golub and CIM, themselves, have also made a famous nearby office-to-residential play: they partnered on transforming the Tribune Tower into high-end condos.

But office-to-resi conversions haven’t proven to be a silver bullet for every office buyer.

Editor’s note: this post has been updated to include a statement from Blackstone Mortgage Trust.