Lending issues plague Loop 2 buildings as downtown office market struggles to make a comeback
Two office buildings, whose loans were sold to investors in commercial mortgage-backed securities, are on the brink of distress – the latest evidence of dwindling demand for workspace and a drop in property values have owners in the Loop struggling to stay afloat from the effects of the pandemic.
In one case, a $16.5 million loan attached to 216 West Jackson Blvd., a 10-story property, was transferred to a special servicer this month, alerting investors that the mortgage could soon default , according to Crain’s Chicago Business.
19 LaSalle Street South.
And, after being moved to a special fixer in May, a $19 million loan matured this month on a 16-story office building at 19 South LaSalle St.
A Chicago-based firm of Marc Realty paid $22.3 million for the 198K SF 216 West Jackson property in 2013 when it was almost fully leased. While the property went up for sale in February 2020, anticipated bids of $27 million never materialized.
According to Bloomberg data retrieved by Crain’s, the property’s occupancy rate fell to 62% last year. His loan was recently transferred to LNR Partners of Miami Beach, Florida, due to difficulties keeping up with the mortgage, which is due to mature in October 2023.
The former central building of the YMCA Association on LaSalle has traced a similar path. Investor Ruben Espinoza bought the 129-year-old building for $22 million in 2019 at a time when investment was collapsing in Chicago’s CBD.
The 159K SF property has struggled, generating only a fraction of Espinoza’s $1.1 million debt service payment for 2021. Occupancy also dropped to 56% last year.
Espinoza announced in July that he would discuss a possible way forward for the building and its loan, which was transferred to KeyBank in May. To date, those plans have not been announced, Crain reported.
Neither owner has stopped making payments, according to Crain’s, although neither currently generates enough net operating income to cover annual debt service.