Chicago Office Complex Handover
Description: Varde Partners, a Minneapolis-based lender, has taken control of Triangle Plaza near Chicago’s O’Hare International Airport from Alliance HP. The 627,000 square feet office complex, featuring two 14-story towers, was surrendered by Alliance due to a $78 million loan foreclosure. Despite performing well, the building succumbs to the challenges posed by historically low office space demand in the city. Learn more about this unique handover and its implications for the commercial real estate market.
In a significant development within the Chicago commercial real estate market, Varde Partners has acquired the Triangle Plaza office complex from Alliance HP. Situated near O’Hare International Airport, the property encompasses two 14-story towers, totaling an impressive 627,000 square feet of office space. The handover came as a result of Alliance’s decision to surrender the property to Varde Partners, the lender, following a foreclosure over a $78 million loan. This move adds Alliance to the growing list of landlords forced to relinquish their holdings due to the ongoing challenges of low demand for office space in the city.
One striking aspect that sets Triangle Plaza apart from other distressed office properties handed back to lenders is its commendable performance. Despite the challenging market conditions, the complex boasts an impressive 92 percent occupancy rate. Tenants such as Komatsu, Old National Bank, Combined Insurance, Power Construction, Ardagh Metal Packaging, and Lawson Products currently call Triangle Plaza their home. This level of occupancy is remarkable, especially considering that the overall vacancy rate in Chicago soared to a record high of 22.6 percent in the last quarter. The surge in remote work, climbing interest rates, company layoffs, banking failures, and a generally pessimistic outlook on Chicago’s real estate have collectively contributed to the decline in demand.
Typically, properties surrendered to lenders have struggled with low occupancy rates and faced financial hardships. For instance, Adventus, another major suburban landlord, is currently dealing with a $114 million foreclosure lawsuit for its 870,000-square-foot Riverway office space near O’Hare, which is only 68 percent leased.
The reasons behind Alliance’s decision to give back Triangle Plaza might be attributed to falling rents or issues with the original deal structure. When Alliance purchased the complex for $141 million in September 2018, it was with the assistance of a $78 million loan from Varde. However, the deal involved a ground lease arrangement, where the ownership of the land beneath the structure remained separate from the leasehold. Consequently, Alliance incurred additional costs for land rent on top of debt service for the towers. Such added expenses can prove challenging for property owners, especially if rents continue to decline, as other entities linked to Shidler affiliates have recently experienced with ground lease deals.
While Varde Partners now oversees the leasehold of Triangle Plaza, an affiliate of Alliance and Shidler, a specialist in ground lease arrangements, retains ownership of the land beneath the complex. A similar situation is evident with the land beneath other prominent Chicago office properties, such as the Burnham Center and 300 West Adams Street in the Loop, where affiliates of Alliance and Shidler also own the land.
In a separate instance, the leasehold owner of the Adams Street asset defaulted on their loan early in the pandemic, and a lender’s takeover led to its scheduled auction last month. However, the property has been relisted for sale by JLL.
The Burnham Center’s leasehold is currently being marketed for sale by its owner, Golub & Co., with an offering that is expected to be less than the property’s debt.
As Triangle Plaza enters a new chapter under Varde Partners’ management, industry experts closely observe how the evolving commercial real estate landscape in Chicago will shape the fate of such office complexes. With challenging market conditions and changing work dynamics, the fate of these properties will remain a subject of interest for investors and industry stakeholders alike.
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