European lender hits Loop office landlord with $237M foreclosure

A French financial services company that tried to sell its $230 million loan note tied to a troubled Loop office building is pursuing foreclosure instead.

Lender Societe Generale filed the foreclosure complaint against the owners of 161 North Clark Street in Cook County court on Monday, in the latest example of the rampant distress squeezing office landlords in Chicago and major cities across the country as hybrid work patterns and rising interest rates prevent big landlords from selling or refinancing at high enough values to cover their debts.

The 49-story building spanning more than 1 million square feet is owned by a group of investors led by Korea Post, the national postal service of South Korea. CBRE Investment Management bought the building on behalf of the Korea Post fund from Tishman Speyer for $331 million in 2013, according to Cook County records. It was 93 percent leased at the time of the purchase, but has taken a turn for the worse since the landlord refinanced in 2018 with a $230 million mortgage from Societe Generale.

Societe Generale declined to comment and CBRE Investment Management did not respond to request for comment on behalf of the owner.

Office buildings selling for far less than what an investor previously paid for the site has become common in today’s market, given office landlords’ ongoing competition with remote work and ballooning borrowing costs. Chicago’s office vacancy rate reached a record high of more than 27 percent last quarter, as a slew of companies have downsized their real estate, according to Savills.

The court filing notes that the borrower has stopped making payments on the loan, which was set to mature in 2025, and the owner “indicated that it is no longer willing to participate in the management of the property.” The lender is also asking the court to appoint a receiver for the property that would operate the asset while the lender completes its takeaway and works to find a resolution to the outstanding debt.

The entire $230 million principal of the loan is unpaid, as well as $5.3 million in accrued interest and $1.2 million in default interest, as of September 30, according to the complaint. Another $71,000 in interest is added onto the debt each day it remains unpaid, the complaint said.

In May, the lender was exploring listing the building’s loan note for sale as an opportunity for investors to snag the debt at a discount and pursue foreclosure. But the court filing indicates Societe Generale hasn’t found any takers and is moving to take the building’s keys back itself. Eastdil Secured has been hired by the lender to market the loan note to potential buyers and it’s still for sale amid the foreclosure.

At the time of the loan sale’s launch, it was reported the Korea Post venture was still making payments on its loan, which means it has decided it isn’t worth continuing to do that and probably won’t get much, if any, equity out of a change in ownership, considering the lender’s allegation that the landlord stopped payments.

The asset was 80 percent leased when the lender began shopping the loan this year, slightly better than the downtown Chicago average, which has crept to new record highs in most quarters since the pandemic struck. Cook County recently leased more than 106,000 square feet in the property through 2026 to temporarily relocate some 600 employees while the government renovates its nearby office properties.

At the time of the listing, market experts said the building is worth far less than the $230 million loan, marking a potential massive loss for the Korea Post venture, which took out a $185 million first mortgage from MetLife when it bought the building in 2013, before replacing that debt with the refinancing deal from Societe Generale.

The Clark Street building, completed in 1992, joins other even older large office properties currently moving through the Cook County foreclosure process, including the historic Jeweler’s Building at 35 East Wacker Drive and 601W Cos.’ Civic Opera building at 20 North Wacker.

Editor’s note: This story was updated to add that Eastdil Secured is marketing the Clark Street building’s note.

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