Loan was one of several used by developer in $1.7 billion purchase of six Windy City towers in 2007; New York Federal Reserve taking a hard line.
The largest real estate deal in Chicago history is turning into the biggest example of the grim plight of many properties in the city's downtown office market.
A venture led by New York-based Tishman Speyer Properties has defaulted on part of a package of loans used to finance the $1.72-billion purchase of six prime office towers in Chicago's Loop during the frenzied real estate market of 2007, sources familiar with the deal say.
The developer bought the 5.7-million-square-foot portfolio from Blackstone Group, which flipped them as part of the New York private-equity firm's $39-billion leveraged buyout earlier that year of Chicago-based Sam Zell's Equity Office Properties Trust.
The buildings, including such Loop landmarks as the Civic Opera Building and the 10 & 30 S. Wacker Drive complex, have lost much of their value amid the broad decline in the commercial real estate market.
Tishman Speyer, led by longtime developer Jerry Speyer, is in hard-nosed negotiations with officials of the Federal Reserve Bank of New York to rework an estimated $1.4 billion in loans. The Fed inherited the mortgages as part of the 2008 collapse and sale of Wall Street investment bank Bear Stearns Cos. With the talks at a stalemate, the Fed is taking an aggressive tack.
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Avoiding a Night of the Living Dead scenario could be tough even for an established firm like Tishman Speyer, whose Chicago portfolio totals 12.2 million square feet.
A Tishman-led venture is in default on a mezzanine loan of undetermined size, part of an estimated $1.4-billion package of mortgages, sources say. The loans come due next year but can be extended until 2012, according to sources. Earlier this year, the Fed began selling off pieces of the loans to institutional investors.
A source downplays the default, calling it “technical,” but the Fed has reacted sharply, effectively freezing a reserve fund. In a statement, Tishman Speyer says, “The lenders have delayed certain capital expenditures that already had been approved and that were required under the loan agreement.”
The tough tactic is apparently intended to force Tishman Speyer to invest more of its own money in the deal but could backfire.
A New York Fed spokesman says, “We are optimistic that a resolution will be found to ensure that the properties continue to be well-managed and maintained well into the future.”
http://www.crainsnewyork.com/article/20091205/FREE/912059998
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