The U.S. office market’s post-pandemic epidemic of foreclosures amid the billions in looming maturities rages on. With high-interest rate loans and stringent lending terms, refinancing deals remain hard to close, and there are no guarantees that attempts to modify loan terms or secure payment extensions will prove successful. A growing number of property owners are finding themselves with no choice but to hand the keys to their occupancy-challenged properties back to their lenders.
But what happens after buildings go into foreclosure is also uncertain in this market. In Chicago, the nearly 1 million-square-foot office tower at 30 North LaSalle was put up for foreclosure auction by the Cook County Sheriff’s Office. But, the property failed to attract any takers at the minimum bid price of $34.7 million. That left the lender, American General Life Insurance, a subsidiary of AIG (now called Corebridge Financial), to pay the amount and take control of the property.
Originally developed in 1974 on what had once been the site of the Chicago Stock Exchange, 30 North LaSalle had been a tenant and lender favorite over the years, boasting a premier location within close proximity to City Hall, a metro station at its door, and more than 10,000 square feet of retail at its base. AmTrust Realty acquired the 44-story skyscraper for $237.5 million in June 2014. Then the pandemic hit, and the office vacancy rate in Chicago’s central business district has since not been able to recover.
AmTrust remained positive about Chicago’s office prospects and, in late 2021, committed to a $100 million renovation program of its multi-building Loop portfolio, including 30 North LaSalle. AmTrust’s renovation plans for the property called for an upgraded lobby and the creation of a two-floor amenities space, hospitality bar included. However, a good location and an overhaul designed to cater to today’s workforce have not been enough to fill the tenant roster. 30 North LaSalle is 54 percent vacant and has had one of the largest available contiguous blocks of space—in excess of 200,000 square feet—in downtown Chicago.
AmTrust’s challenges at 30 North LaSalle came to a head in August 2022 when the company failed to make its mortgage payment, which prompted American General to file a foreclosure lawsuit. It all ended just a couple of months ago, with the lender becoming the landlord after forking over the minimum auction bid price of less than $40 million. It’s a striking financial fall from grace for a building that has changed hands in transactions in the nine-figure range for decades. In 1997, Equity Office Properties acquired 30 N. LaSalle for approximately $125 million. Ten years later, in 2007, soon after the building came under the ownership of Blackstone via the company’s $39 billion acquisition of Equity Office, Blackstone sold 30 North LaSalle as part of a six-property Chicago office portfolio to Tishman Speyer for $1.8 billion, or an average $300 million per building.
This year’s foreclosure on 30 North LaSalle wasn’t the first loan-related trouble the property has experienced. In 2010, Tishman Speyer, saddled with the ramifications of acquiring the Chicago portfolio three years earlier and other big-ticket purchases, barely escaped losing the building when it struggled to make the payments on a $1.4 billion loan backed by the portfolio. Tishman and partner BlackRock had already defaulted on $4.4 billion in loans stemming from their headlining acquisition of the Stuyvesant Town and Peter Cooper Village apartment community in Manhattan in 2006. Ultimately, Tishman’s lenders on the Chicago office portfolio debt, including the Federal Reserve Bank of New York, saw fit to restructure the loan.
American General chose not to restructure and instead foreclosed on the property. They probably thought that they would be able to dispose of the building at auction and write off the rest of their losses. But that was not the case. American General might have gotten lucky: the building was one of five selected by Chicago’s mayor to be part of the LaSalle Street Reimagined initiative that will provide zoning changes and tax incentives to help develop much-needed housing. It is scheduled to be converted to a mixed-use building with roughly 10,000 square feet of retail space at the street level, 432 residential units totaling 440,000 square feet on the first 22 floors, and 590,000 square feet of Class A office accommodations above.
The conversion will certainly help American General recover some of its losses on the $186 million loan, but it won’t come without a price. The proposed redevelopment project will cost $173 million to complete. Even with incentives from the city, it will take a long time for the owners to recoup that cost. Plus, there is no guarantee that the building won’t continue to struggle as more than half of it is still leased as office space. Other lenders are certainly watching what happens with 30 North LaSalle for an indication of what might happen, good or bad, after an office building goes into foreclosure.
