Gold Coast apartment tower surrendered to lender | Crain's Chicago Business

Danny Ecker is a reporter covering commercial real estate for Crain's Chicago Business, with a focus on offices, hotels and megaprojects shaping the local property sector. He joined Crain’s in 2010 and previously covered the business of sports, as well as the city's convention and tourism sector.

A Gold Coast residential tower has joined a growing list of downtown apartment buildings falling into distress as elevated interest rates keep squeezing landlords.

A venture led by New York-based TPG Angelo Gordon last month transferred the 31-story apartment building at 2 W. Delaware St. to lender ACORE Capital, according to Cook County property records. An ACORE affiliate had provided a $130 million mortgage backed by the 185-unit property in late 2020 and seized the tower via a deed in lieu of foreclosure, records show, typically a way for a lender to take over a property without a lengthy foreclosure process.

It's one of the largest cases of distress in the well-performing downtown apartment market, but it's far from the only one. While much of the distress across the downtown commercial property sector is dominated by office properties, owners of multifamily properties have also been hard-pressed to pay off maturing debt because borrowing costs have spiked over the past 2½ years. Rent growth in Chicago's urban core has also slowed over the past several quarters, adding to the challenge for apartment owners that need to refinance.

The owners of apartment buildings at 1407 S. Michigan Ave., 860 N. DeWitt Ave. and 63 E. Lake St. are among those that have either been hit with foreclosure lawsuits this year or lost properties to their lenders.

It's unclear what prompted the TPG Angelo Gordon venture to surrender the Delaware Street property, and a spokesman for TPG Angelo Gordon declined to comment.

The TPG Angelo Gordon entity paid nearly $135 million in 2016 for the rental portion of the property, which was originally developed in 2010 as a condominium tower called Walton on the Park but turned into mostly rental units after condo demand foundered during the great financial crisis. When the firm and its partners, Chicago-based JDL Development and Norridge-based real estate firm Harlem Irving, bought the unsold condos, JDL said it intended to return the property to its original state and sell off condo units again.

But after selling just nine units over the ensuing 18 months, the owners pivoted back to rental units to take advantage of a strong downtown apartment market. That plan helped boost the property's value enough that the group was able to capitalize by refinancing the rental portion of the tower with the $130 million mortgage toward the end of 2020.

JDL CEO Jim Letchinger said his firm was brought in to oversee the conversion to rental units, but has had "no financial obligations" to the property for the past few years.

A Harlem Irving spokesman didn't respond to a request for comment.

It's unclear what ACORE has planned for the property, and a spokesman for the lender declined to comment.

The Real Deal Chicago first reported that ACORE had taken control of the property.

Net monthly rent at top-tier, or Class A, apartment buildings downtown was $3.75 per square foot midway through the year, according to data from appraisal and consulting firm Integra Realty Resources. While that was still close to an all-time high for the market, it was a hair below the same time in 2023. A rush of new projects being completed — downtown is on track to have more new units delivered this year than any year since 2017, according to Integra — has weighed down rent growth.

Still, apartment landlords are expected to gain some pricing power next year. A drop-off in new construction projects getting financed and underway during the COVID-19 pandemic has lined up a 2025 in which the market will see little new supply.

TPG Angelo Gordon has a big portfolio of Chicago-area commercial real estate, primarily in the industrial property sector. JDL is a longtime developer downtown, known recently for leading the development of the 76-story One Chicago Square mixed-use residential project in River North, among other projects.

Harlem Irving owns a portfolio that mostly includes retail and mixed-use apartment properties in the Chicago area.

Danny Ecker is a reporter covering commercial real estate for Crain's Chicago Business, with a focus on offices, hotels and megaprojects shaping the local property sector. He joined Crain’s in 2010 and previously covered the business of sports, as well as the city's convention and tourism sector.

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