Sometimes landlords miss their rent payments too. According to news sources, the owner of a massive office complex in Chicago has been hit with a foreclosure lawsuit alleging it defaulted on its nearly $115 million mortgage, one of the largest examples of office distress ever in the Chicago suburbs.
A venture of Canadian real estate firm Adventus Realty Trust failed to make its mortgage payment last month on the loan tied to the Riverway office complex, according to a complaint filed last week in Cook County Circuit Court. Investment management company Wilmington Trust filed the suit on behalf of bondholders in the loan, which was packaged with other loans and sold off to commercial mortgage-backed securities investors.
Riverway joins a growing list of office properties nationwide falling into distress as remote work pounds demand for offices. Companies shrinking their office footprints have collectively cost the suburbs more than 3 million square feet of tenants since 2020 — close to the same amount lost in the suburbs during the worst of the Great Recession in 2008 and 2009 combined — and driven suburban office vacancy to a new high in 10 consecutive quarters, according to data from Jones Lang LaSalle.
The attrition has pushed many office landlords underwater, meaning their properties are worth less than the debt tied to them. Higher interest rates and an unsteady banking environment, meanwhile, have made it difficult for owners to pay off maturing loans, prompting a wave of foreclosures and landlords surrendering properties to their lenders rather than facing a legal fight.
The property, which includes three office buildings and a small daycare center, was 95% leased when Adventus bought it. It remained more than 90% full until late 2019, when one of its largest tenants, Central States Pension Fund, vacated the property with the expiration of its lease.
Then came the COVID-19 pandemic and the space-shedding trend. Occupancy stood at just 67% in 2020, when the complex’s $3.9 million in net cash flow fell way short of Adventus’ $8.2 million debt service payment for the year, according to Bloomberg loan data. Escalating rents helped net cash flow rise to $4.9 million last year, though occupancy fell to just 58%, loan data show.
Now Adventus faces another challenge as its largest tenant, US Foods, has a lease expiration approaching in September on nearly half of its 296,833-square-foot space, according to a report from Fitch Ratings.
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