Hines JV to Recapitalize Chicago’s Citadel Center

The deal is reportedly the largest restructuring of a performing CMBS loan to date.

By Scott Baltic, Contributing Editor

Citadel Center Chicago (on the right)
Citadel Center Chicago (on the right)

Chicago—In a move involving a $50 million equity investment, a joint venture between Hines and New York alternative investment adviser Angelo, Gordon & Co. has recapitalized 131 S. Dearborn, aka Citadel Center, in downtown Chicago, Hines announced late last week. The deal is reportedly the largest restructuring to date of a performing CMBS loan.

Dearborn Capital Group LLC, the seller of the 1.5 million-square-foot, 37-story, Class A office tower, reportedly was in a tough situation following the decision by name tenant Citadel Investment Group to slash its space by 100,000 square feet and the pending relocation of law firm Seyfarth Shaw, which occupies 308,000 square feet, to the Willis Tower.

Angelo Gordon was able to work out an extension of the loan for several years with the special servicer, CW Capital, presumably based in no small part on the new owners’ success in filling about 130,000 square feet courtesy of a new tenant, the beer division of Constellation Brands. In addition, Chicago tech firm Sprout Social has signed a new 11-year lease for 64,000 square feet.

The joint venture partners also announced that they will undertake “an extensive capital improvement program” that will include adding a full-service fitness center, a landscaped roof deck, a tenant Wi-Fi lounge and conference center.

“The new amenities we have planned, along with the property’s existing infrastructure and location, are highly prized by Chicago’s Class A tenants and will support future leasing activity,” Hines Senior Managing Director Tom D’Arcy said in a prepared statement.

“With the renovation, the building’s on-site amenity package will rival new construction buildings, and it will be the only trophy office tower with a private landscaped rooftop lounge,” Ryan Klenovich, director at Angelo Gordon, added.

Data provided by Yardi Matrix indicates that Dearborn Capital Group purchased the building, which had been completed in 2003, for $560 million in November 2006. That acquisition involved a $472 million, 10-year loan by Wells Fargo and a $50 million mezzanine loan by a private lender.

In the latest transaction, Angelo Gordon & Co. assumed the remaining balance on the $472 million loan and received a four-year extension, pushing the maturity date back to November 2020, also according to Yardi Matrix.

Crain’s Chicago Business reported that Dearborn Capital is retaining a small stake in the building.

Hines, which has been the building’s property manager since 2009, declined to respond to Commercial Property Executive’s request for additional information.

Dearborn Capital Group will assist with asset management and leasing for the building. Iron Hound Management advised Hines and Angelo Gordon, and Sutton, Pakfar & Courtney LLP served as lead transaction counsel.

Image courtesy of The Telos Group