A suburban Chicago real estate investor has handed back four office buildings west of the city to its lender after previously trying to sell them and avoid a loan default, adding to an uptick in properties being voluntarily surrendered throughout the country during a challenging financing market.
Millbrook Real Estate last month gave up the office buildings in the Arboretum Lakes office complex in Lisle, Illinois, via deeds in lieu of foreclosure, DuPage County property records show.
The new owner is an affiliate of Voya Financial, which provided about $59.7 million in loans on the buildings that were set to mature next year.
By agreeing to deeds in lieu of foreclosure on the buildings at 801, 901, 1001 and 1011 Warrenville Road, Millbrook acknowledged it was unlikely to be able to refinance them when its debt matured, and it spared Voya from seeing through a formal foreclosure process.
That form of voluntary handoff of financially challenged properties, an alternative to forced seizures in court, has become far more common in recent months as loans mature during a time of lower property values, rising interest rates and other challenges.
As has become common with office properties that have lost significant value, the lender and property owner previously tried to work together on a sale of the property, with Cushman & Wakefield brokers listing the five-building, 807,253-square-foot campus in Lisle for sale in June.
But after apparently not receiving an offer it liked, Voya instead opted to take possession of the four buildings for which it provided the loans in 2014.
Millbrook had owned those buildings and one at 701 Warrenville Road since buying them in two separate deals in 2009 for a combined $43.1 million, according to CoStar data and property records.
Buffalo Grove, Illinois-based Millbrook later refinanced the complex with the loans from the Voya affiliate in 2014 and a more than $6.2 million loan from Lake Forest Bank & Trust for the 701 Warrenville building that Millbrook still owns.
Cushman & Wakefield marketed all five buildings together this year, saying a new owner could add value by filling the 27% of space in the complex that was vacant.
New York-based Voya and Millbrook both declined to comment to CoStar News.
Foreclosures Swing Up
CoStar News reported in November that deeds in lieu of foreclosure have been on the rise as more landlords struggle to refinance their buildings. That is especially true for office landlords, who made up 43% of all deeds in lieu during the second quarter of this year.
Deeds in lieu made up 21% of all foreclosures in the first half of 2020 after the onset of COVID-19 in the United States before falling to just 6% in the first half of 2022, according to CoStar data. It rose to 30% in the second half of last year and 33% in the first half of this year.
Many office buildings put on the market for sale in the Chicago area have been with the property owner and lender working together, in some cases with the lender offering financing to buyers to help offset a challenging lending environment and minimize the lender’s loss on the loan.
In downtown Chicago, where high-dollar property sales typically are common, it has been about a year and a half since the last office tower sale of more than $50 million.