Owner of Schaumburg offices hit with $83M foreclosure suit: The complaint comes despi | REITs Message Board Posts


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Msg  15999 of 16167  at  9/7/2023 8:23:25 PM  by

jerrykrause


Owner of Schaumburg offices hit with $83M foreclosure suit: The complaint comes despi

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Owner of Schaumburg offices hit with $83M foreclosure suit: The complaint comes despite some big leasing wins during the pandemic at the two-building, 890,516-square-foot property next to Woodfield Mall

 
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; Chicago Vol. 46, Iss. 35, (Sep 4, 2023): 26.
 

A local real estate firm that bet heavily before the COVID-19 pandemic on reviving a big office complex in Schaumburg has been hit with an $83 million foreclosure lawsuit, another high-profile example of distress as weak demand for workspace and high interest rates keep torturing landlords.

A venture of Skokie-based American Landmark Properties recently defaulted on a $95.5 million loan tied to the Schaumburg Towers office complex at 1400 and 1450 American Lane in the northwest suburb, according to a complaint filed Aug. 25 in Cook County Circuit Court. A venture of Chicago-based lender Prime Finance Partners alleges in the lawsuit that American Landmark failed to pay off the mortgage when it matured June 9 and now owes just more than $83 million from a combination of the outstanding loan balance and other fees.

The two 20-story buildings next to Woodfield Mall add to a historic wave of distress flooding the office market. A combination of companies cutting back on office space with the rise of remote work, higher borrowing costs and banks wary of the office sector have clobbered office property values, leaving landlords with maturing debt scrambling to hold onto their properties.

Distress rises

Many owners have surrendered buildings to their lenders rather than face a foreclosure process. As of the end of June, the total value of distressed office properties nationwide had jumped 75% from the beginning of the year to $24.8 billion, according to research firm MSCI Real Assets. The total marked the first time since 2018 that neither retail nor hotel properties were the biggest contributors to commercial property distress, the firm's data shows.

Since March, owners of a handful of large office properties in the Chicago suburbs have been hit with more than $360 million worth of foreclosure lawsuits, including complexes in Rosemont, Rolling Meadows and Lisle, as well as Schaumburg Towers.

American Landmark's case, however, stands out from the crowd because the landlord had some leasing success at Schaumburg Towers during the pandemic. The 890,516-square-foot property — which previously housed the headquarters of insurance giant Zurich North America — was half-empty when American Landmark bought it for $87 million in 2018. At the time, payroll software specialist Paylocity was in the early stages of a 15-year, 300,000-square-foot lease to anchor the complex.

American Landmark proceeded to pump almost $19 million into renovations and new amenities, which helped it land a series of new leases even as demand sunk during the public health crisis, according to a flyer from brokerage Cushman & Wakefield marketing the property for sale earlier this year. A 55,000-square-foot lease with Ally Financial signed in 2021 — a rare COVID-era expansion by the company — led a total of 160,000 square feet of new leasing at Schaumburg Towers since 2020, according to Cushman.

The buildings were a combined 77% leased as of earlier this year, better than the 72% average for suburban office buildings at the time and well ahead of the average among top-tier, or Class A, office buildings in the northwest suburbs, according to data from brokerage Jones Lang LaSalle.

But American Landmark's recent sales effort did not result in a deal, ultimately leading to the alleged loan default in June.

Equity at risk

If Prime Finance Partners seizes the property, it would not only wipe out American Landmark's equity in the complex but also the interest of Chicago-based Pearlmark Real Estate Partners, which provided a $14.5 million mezzanine loan on top of the senior mortgage.

A Pearlmark spokeswoman declined to comment. Spokesmen for American Landmark and Prime Finance did not respond to requests for comment.

American Landmark is well known locally as the former owner of Willis Tower, having been part of a joint venture that sold the city's tallest building for $1.5 billion in 2015. The firm's local portfolio today includes a pair of properties in the Illinois Science & Technology Park in Skokie and two office buildings at One and Two Oak Brook Place in the western suburb.

The Real Deal Chicago first reported the Schaumburg Towers foreclosure lawsuit.

 


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