Investors who are looking to purchase a Loop office building at a discount amid a slump in demand for downtown workspace have two new options.
According to a source with knowledge of the situation, in the case of the largest loan, the lender who holds a $230m mortgage secured by the 49-story tower at 161 N. Clark St. will hire a broker to help sell the loan. If the building’s value is less than the amount of the loan at maturity, a buyer of the mortgage may be able to control the property. According to MSCI Real Assets, the loan is due at the end of 2025.
A flyer states that Eastdil Secured is marketing the 29-story building at 230 W. Monroe St. to investors. According to Cook County property records, the building is owned by Accesso Partners of Hallandale Beach in Florida. They bought it in 2014 for $122 millions and refinanced with an $87.7-million loan from Morgan Stanley. The 623,675 square foot building has no asking price, but those with financial knowledge estimate that it’s worth about the amount of the Morgan Stanley loan.
Both offers are being tested in a time of difficulty for landlords who own downtown offices. The rise in remote work is causing companies to reduce their workspace. It is unclear whether the demand for real estate will ever be strong like it was prior to the COVID-19 epidemic, which has scared off many potential buyers. Low property values and high rates of interest have made it difficult for landlords refinance their properties. This has forced a number of owners, many of whom own buildings located in the Loop, to either surrender their buildings or face foreclosure suits.
Commercial Mortgage Alert first reported on the listing of the 1.1 million square foot Clark Street tower. The owner was still paying his loan, which is notable. This suggests that the owner group, led by South Korea’s postal system, and advised by CBRE Investment Management believes they still have equity in the property, or will be able refinance it at some point.
Industry experts believe the building is now worth less than the loan of $230 million that was taken out by the Korea Post venture in late 2018. This valuation would mean a massive loss in equity for the building’s owners who paid $331 million to purchase the tower back in 2013.
The lender, a group led by Societe Generale in Paris, would be left with a distressed property when the loan matures if the building’s value is less than its debt. The bank has started looking for a buyer while the building still generates a lot of cash flow.
A spokesperson for CBRE Investment Management refused to comment and spokespeople from Societe Generale didn’t respond to a comment request.
Commercial Mortgage Alert reports that the tower has 80% of its space leased, which is similar to the downtown average as of the March end. Last year, the owners signed a lease with Cook County for 106,472 square feet through September 2026. Cook County is temporarily housing nearly 600 employees while renovating three office buildings it owns nearby.
James R. Thompson Center, located across the street, is a potential windfall for the 31-year old building. Google announced last year that it would help to redevelop the Thompson Center and ultimately purchase it as its new Chicago hub.
Accesso and Morgan Stanley have a “stapled finance” option available on Monroe Street to help close a deal for their building. This means Morgan Stanley will provide a loan to a potential buyer. This strategy could increase their chances of finding buyers rather than searching for one who can secure its own financing. Some banks have completely avoided the office market, while others have tightened lending dramatically.