‘A Game Of Extensions’: Chicago’s Top 5 Maturing CMBS Loans In 2024

High interest rates and declining property values teamed up in an unsavory alliance in 2023, making it difficult for borrowers to get new loans and for loan holders to refinance old ones.  

That imperfect pairing is now looming over the Chicago commercial real estate market as a wave of high-value distressed CMBS loans is set to mature in the coming months — or, in some cases, they are already delinquent. Loans that lenders underwrote five or 10 years ago have debt balances coming due, and with many borrowers either unable or unwilling to commit capital to distressed properties, they are aiming to buy time instead. 

“It’s been a game of extensions, by and large,” Trepp Research Director Stephen Buschbom said.

Nearly 1 in 4 Chicago properties tied to mortgage-backed securities are distressed, the highest rate in the country by a considerable margin, according to an analysis by Kroll Bond Rating Agency released late last year. The situation is even direr for office properties, roughly a third of which are in some form of distress, a rate that trails only Denver.

In a metro that already has a fair amount of distress, borrowers may not see much hope for their situation, Buschbom said. 

“They think, ‘Gosh, if I look around, many of these other buildings are in distress. That tells me values have come down pretty substantially. If this many other borrowers have been willing to either walk away or hand back the keys or are struggling, why would my situation be much different?’” he said.

Three of the five loans listed below are already technically delinquent, according to Trepp data provided to Bisnow. Their “model” maturity date indicates when their next payment is due — each time a borrower misses a payment, that date gets rolled over to the next month. These loans’ statuses will remain in flux until the lender forecloses on the property or modifies and extends the loan.  

The amount of time a property can remain in limbo is undefined, but the rule of thumb is properties will be in this state for about three to six months before a lender and borrower reach a resolution, Buschbom said. In past waves of distress, like the 2008 financial crisis, it may have taken between six and 12 months for parties to reach a resolution. But the industry has “found its rhythm and process,” and modifications are coming through faster than they used to, he said.  

Here are the top five troubled loans in Chicago, followed by a conversation on what lies ahead for distressed property owners.

300 N. LaSalle St.

• Loan balance: $437.2M 
• Maturity underwritten date: Aug. 15, 2024
• Maturity model date: Aug. 15, 2024
• Delinquency status: Current
• Paid through date: December 2023
• Purchase price: $850M
• Purchase date: May 2014
• Buyer: Southern California real estate investment firm The Irvine Co.
• Last reported assessed value: $121.8M, according to a 2023 Cook County assessment

300 N. LaSalle set a record for the highest price ever in the city for an office property when The Irvine Co. purchased it in 2014, but 10 years later, its future is uncertain. In March 2023, the investment company planned a $30M renovation of the 1.3M SF tower as its largest tenants, ​​Kirkland & Ellis and Boston Consulting Group, planned to vacate the building. The two companies alone account for 60% of the building’s area. 

However, Winston & Strawn leased 148K SF in July 2023, taking over six floors at the building and largely replacing the gap BCG will leave when it moves to 360 N. Green St. after Sterling Bay completes the new Fulton Market building. 

175 W. Jackson Blvd.

• Loan balance: $250.5M 
• Maturity underwritten date: Nov. 6, 2023
• Maturity model date: Jan. 10, 2024
• Delinquency status: Nonperforming matured balloon
• Paid through date: March 2023
• Purchase price: $305M
• Purchase date: April 2018
• Buyer: Brookfield Property Partners
• Last reported assessed value: $170M, according KBRA Analytics data from summer 2023.

Brookfield Property Partners made a major bet on a century-old, 1.4M SF office building when it purchased the Jackson Boulevard property in 2018, paying $305M for the asset. A court-appointed receiver for the building put it up for sale in July 2023, with JLL marketing the property, but there hasn’t been word on interested buyers. 

Famed architect Daniel Burnham designed the building, which was constructed in 1912. The loan on the property is already past its underwritten maturity date, which passed in November. 

2 N. La Salle St.

• Loan balance: $137.8M
• Maturity underwritten date: Feb. 11, 2017*
• Maturity model date: Jan. 15, 2024
• Delinquency status: Nonperforming matured balloon
• Paid through date: July 2023
• Purchase price: $42M recapitalization
• Purchase date: November 2016
• Buyer: Hearn Co. and Fortress Investment Group
• Last reported assessed value: $60M, down from $100M, according to October DBRS Morningstar loan data.

*The loan was modified in 2016 and again in 2020. The first modification pushed the maturity to November 2019, and the latter pushed the maturity to July 2023 and bifurcated the loan.

A joint venture between Hearn Co. and Fortress Investment Group scooped up a majority interest in the 26-story, 700K SF office tower in 2016 when it pledged to spend $42M on renovations and rescue a struggling building bought right before the 2008 financial crisis. While the property looked to be on the upswing after securing a 230K SF lease with the city in 2019, the added costs to build out the space hampered the JV. 

In 2020, the loan was bifurcated into a $100M senior note and a $27M chunk put at the end of the line of creditors and equity owners to be repaid upon a sale, The Real Deal reported. Its occupancy is at 70% as of its latest valuation, slightly under the overall average rate for downtown Chicago offices.

The building received a piece of good news in December when the city announced it would increase its footprint in the building by 16K SF to make room for the city's environment arm and a police oversight panel.

200 W. Monroe St.

• Loan balance: $69.5M
• Maturity underwritten date: June 15, 2024
• Maturity model date: June 15, 2024
• Delinquency status: Current
• Paid through date: December 2023
• Purchase price: $122M
• Purchase date: June 2014
• Buyer: Accesso Partners (formerly Beacon Investment Properties)
• Last reported assessed value: $54.2M, according to a 2023 Cook County assessment

Accesso Partners threw a lot of chips in on the Chicago office market over the past 10 years, and many of those bets are now at risk of siphoning away its bankroll. It paid $122M for the Monroe Street property in 2014, also buying 20 N. Clark St. and office properties in the Chicago suburbs, according to Crain’s Chicago Business. 

Accesso sold a building it bought in that flurry of transactions at 230 W. Monroe St. for $45M to Menashe Properties in September, a stark drop from the $122M it paid for the property. 

200 W. Monroe’s outstanding loan balance and depressed assessed value may play into Accesso’s decision-making when the loan matures in June.

JW Marriott Chicago

• Loan balance: $68.5M
• Maturity underwritten date: Aug. 5, 2022
• Maturity model date: Jan. 15, 2024
• Delinquency status: Real-estate owned*
• Paid through date: Not applicable
• Purchase price: $251M at foreclosure sale
• Purchase date: July 2022
• Buyer: Wells Fargo
• Last reported assessed value: Nearly $256M in March 2022, according to Bloomberg data tied to the CMBS loan.

*The loan became delinquent in the summer of 2020. The lender, Wells Fargo, was the successful bidder at the foreclosure sale in July 2022, with the final deed recorded in October of that year. The special servicer projects disposition in the third quarter of 2024.

The only nonoffice property on the list, the JW Marriot is held by Wells Fargo, the property’s original lender, which took control over the property by winning a foreclosure sale for $251M after its previous owner failed to make a loan payment for several months. The bank was the sole bidder for the hotel.

The hotel first opened in 2010 alongside a surge of developers that aimed to convert old office buildings into hotels, according to CoStar. The special servicer projects that the property will sell later this year.

What Comes Next?

When a lender is deciding between liquidating a property and modifying its loan, the scenario that provides the highest value will be the strategy it will choose, Buschbom said. Given the environment of lower property values, liquidating a property would result in heavy losses, he said. 

On the flip side, if a borrower is willing to commit capital to the property for items like tenant improvements or to pay down the principal of the loan, the modification strategy often ends up as the best option for a lender, Buschbom said. Wanxiang America Real Estate Group negotiated a two-year loan extension with its lender on the two-tower Prudential Plaza after it agreed to pump tens of millions of dollars into renovations. 

Owners of Class-A properties with the amenities to attract tenants may be more hesitant to walk away if they feel they can capture some leases, address upcoming expirations and ultimately salvage some equity, Buschbom said. The large leases companies have signed at similar properties may provide a reason to do whatever is necessary to stay afloat, he said. 

“It feels like maybe we've turned a little bit of a corner in terms of how bad things could get,” Buschbom said. “There's still a lot of pain to work through if you look at the lease expiration schedule, so there's a lot of uncertainty still.”

Buschbom said he’s looking for a continuation in lower Treasury yields that would indicate the market is in a different situation than at the most “tumultuous” points of 2023.

There may be more refinanced loans and fewer modifications on better-performing properties, Buschbom said, adding he expects 2024 to be better for the market, though less than stellar. Still, if loan modifications continue, it is a signal that some of the market’s health has yet to improve, he said. 

“If we do start to see some refinances happen at maturity, that would be a really nice, positive sign to see,” Buschbom said. “But at this point, I don't think anybody's baseline scenario would be that they're expecting to see more refinances for office buildings than they did last year.”