Ontario Place condo board nixes sale of River North tower to Strategic Properties

Alby Gallun is a senior reporter covering commercial real estate for Crain's Chicago Business. He joined Crain's in 2000.

An investor's $190 million takeover of a 51-story River North condo tower is officially kaput.

The condominium board of Ontario Place, a high-rise at 10 E. Ontario St., has terminated a long-delayed deal to sell the 467-unit building to Strategic Properties of North America, according to an email the board's law firm sent to Ontario Place condo owners last night.

It would have been the biggest condos-to-apartments deal—aka "condo deconversion"—in Chicago and possibly the entire country. But deconversions are notoriously difficult to pull off even in good times, and the drastic swing in financial markets last year, including the jump in interest rates, became too much for Strategic Properties to overcome.

Unable to wrap up its financing for the acquisition, the New Jersey-based investment firm asked the Ontario Place board to push the deal back multiple times over the past year. In the most recent extension, the board deferred the transaction's closing date to May 31. Strategic Properties missed that deadline.

The board offered to push back the closing one more time, to July 31, on the condition that Strategic Properties put up more money. Strategic refused, according to the email to owners.

"As of 5:01 p.m. this evening, the Buyer had not agreed to the terms set forth above," the email said. "Accordingly, the Board deems this sale terminated as of 5:01 P.M. CST on June 6, 2023."

An executive at Strategic Properties, or SPNA, did not return a phone call.

"Unfortunately, the Buyer couldn't close the deal after 20 months under contract," Ontario Place Board President Ellen Gutiontov wrote in an email to Crain's. "The Board worked very hard leaving no option unexplored to get a fair proposal from SPNA to extend the closing; however, the SPNA rejected all the Board reasonable requirements and the Board could no longer agree to extend the closing date."

The deal could have marked a high point for Strategic Properties, the most prolific condo deconverter in the city. Over the past several years, the firm has acquired condo buildings in the Gold Coast, Lincoln Park and Lakeview. It's in the process of buying another one in River North, a 309-unit high-rise at 200 N. Dearborn St. But Ontario Place would have been its biggest, at $190 million, more than any investor has paid for a Chicago condo building.

Deconversions gained traction in Chicago around 2015. Amid a sluggish condo market and strong rental market, developers saw an opportunity to profit from the difference in values between the two. By buying an entire condo building, they could pay individual condo owners a premium for their units and still come out ahead because the units were worth more as apartments.

But deconversions are complicated deals because of the fragmented ownership of condo buildings. Rather than buying from one seller, an investor must offer a price and terms that are attractive to dozens or even hundreds of sellers. In Chicago, owners of 85% of a condo property must approve a bulk sale of their units. A small, vocal minority can block a deal.

The Ontario Place board's decision to terminate its agreement ends a dance with Strategic Properties that started more than three years ago. After rejecting a $188 million offer from Strategic Properties in August 2020, the building's owners voted to approve a $190 million deal in September 2021, with supporting votes representing 89.9% of ownership.

But Strategic Properties couldn't clear the next hurdle: financing. When financial markets took a turn for the worse last year, the firm put the deal on hold. A glimmer of hope emerged in March, when a lender, Fairchild US, affirmed its commitment to finance the acquisition. But more delays ensued, with Strategic Properties asking the board for more extensions.

The board offered to extend the closing date to July 31, provided that Strategic Properties pay $700,000 to cover building operating expenses for June and July, among other expenses, according to the email. But the firm didn't agree to those conditions.

Mark Silverberg, a leader of an owners group that opposed the deal—some even went to court in a failed attempt to block it—was satisfied by the board's decision to kill the deal.

"I believe it was a proper end, though it took way too long," he said.

But the process has caused a lot of hardship for Ontario Place owners, including some who moved out of the building earlier this year in anticipation of the sale. Silverberg himself planned to move to a house he bought in Northbrook.

"They were telling everybody in February ‘leave your keys at the front desk,’" he said.

Silverberg said he has filed a claim against the board for damages totaling $600,000 to cover the cost of his new house and legal fees.

It's unclear if Strategic Properties or another investor would approach the board with a new offer for the building. Given the state of the financial markets, it's unlikely any investor could afford to pay $190 million for the property today. It's also likely many owners will be in no mood to entertain a new offer after their experience with Strategic Properties.

"Moving forward, the Board is committed to conducting business as usual and is not actively seeking another offer," Gutiontov wrote in her email to Crain's. "Should the Board be presented with an offer from SPNA or any other potential buyer, they will evaluate it and present it to the owners."

Meantime, the property has suffered from deferred maintenance as the board put off projects, believing that spending the money before a sale wouldn't make sense, he said. Some Ontario Place units recently were fitted with window air-conditioning units after a cooling tower at the building failed, he said. Building management also has frequently shut the building's plumbing system for emergency repairs, he said. Fixing the building's problems could be expensive.

"It's a money crunch now," Silverberg said. "The building is in significant disrepair and people are dissatisfied. People are upset."

In a follow-up email to Ontario Place owners today, Gutiontov said the board has signed an agreement to replace the cooling tower.

"The Board has maintained the building through this process and is committed to normal building administration," Gutiontov wrote in her email to Crain's. "The Board will actively continue to pursue additional capital projects as guided by reserve studies and suggestions by the Ownership."

Alby Gallun is a senior reporter covering commercial real estate for Crain's Chicago Business. He joined Crain's in 2000.

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