Appraisal Puts 131 South Dearborn Tower in Chicago Underwater

The appraised value of the 1.7 million square-foot Citadel Center at 131 South Dearborn in Chicago has dropped to $400 million, below the $472 million in CMBS loans on the asset, according to January remittance data provided by Trepp.

When the $472 million loan was secured, the value of the 37-story asset was listed at $590 million. At the time, the building’s top tenant, JP Morgan, was subleasing more than half its space to the building’s second and third largest tenants, Seyfarth Shaw and Citadel.

The loan was transferred to a special servicer in May 2014, one month after Seyfarth Shaw – which once occupied 300,000 square feet in the building – confirmed its plan to move to the Willis Tower. Citadel also shed about 100,000 square feet in the property in 2013 when it signed a new lease that runs through 2023.

JP Morgan’s lease expires at the end of 2017.

According to servicer notes from Trepp, the owner requested the loan be transferred to a special servicer “for loan modification discussions stemming from complex lease negotiations with the primary tenant (40% of NRA) that wants to downsize and extend its lease.”

Vacancies resulting from the building’s primary tenant downsizing and Seyfarth Shaw departing “create refinance risk at loan maturity in 2016 and will require a significant capital infusion to re-tenant and stabilize the property’s cash flow,” servicer notes say. “Failure to proactively address the capital needs could potentially have an adverse effect on the value of the asset and the asset’s reputation in the Chicago office market.”

As of December 2014, the property was 93.4 percent occupied and in good condition. The servicer says debt service payments are current and expected to remain so for the foreseeable future.

The loan on the property is broken into two $236 million CMBS deals, Trepp reports. The loan also had another $50 million of mezzanine debt at securitization.